Selling a bar is a complex and often stressful process. As a business broker, I’ve facilitated dozens of restaurant and bar sales, and there are a few steps you can take to make sure buyers recognize the value in your bar.
Keep Your Customers Happy
All other aspects of the business being equal, a bar with happy customers is more likely to be sold. While you are positioning your bar for sale, make sure the service provided remains high and sales either remain stable or increase while you are actively selling the business. A good habit is managing reviews on the online platforms Google and Yelp, while also procuring new 5-star reviews. This goes a long way in solidifying the goodwill associated with your bar.
A buyer will do their due diligence in researching your business and their reasonable first step is an online search. Poor reviews will negatively affect the initial perception of the business and plant some concerns about the staff the buyer would be looking to inherit. In the event you receive a poor review, I suggest responding to those customers in an appropriate way; either try to make things right or voice your side of the “story.” This shows you take an interest in the customer experience and allows you the opportunity to address the reason behind the review.
If there are negative reviews from previous months or years, then make it a priority to seek out new, 5-star reviews. By increasing the number of recent, positive reviews, this shows a current picture of the business as well as drives down any old, negative reviews. If there is a theme to the complaints, like slow service or cold food, this is an opportunity to make some changes to the operations as well. Improving the operations would be the best remedy, however, if you decide that making the change is not going to happen, at the very least you know the concerns a buyer may have when speaking with you from the reviews, and you will be able to either justify the concerns or take the opportunity to redirect this negative into a positive opportunity for a new owner.
Have solutions to these issues because it will come up in the negotiating process.
Maintain Your Equipment
No one wants to purchase a bar that they would not want to eat or drink in themselves. Maintaining a high-quality business while you position a sale is important in getting the proper value for your business.
Make sure the kitchen and front-of-house area of your bar are clean and in working condition. You do not want a potential buyer to be turned off because you didn’t properly clean your walk-in refrigerator or range.
If something is broken, make sure it is fixed before you show your business. A buyer will not like paying “top-dollar” for a business that requires immediate capital expenses for new equipment for the business to continue to operate. You don’t need to invest money in expensive upgrades, you just need to ensure you are conducting basic maintenance to ensure that day one of taking over your business, the buyer can continue to operate as you have without missing a beat.
In my experience, many bar owners overvalue their business, which leads to some hard lessons about the realities of selling a bar. Manage your expectations during the selling process by understanding that no two bars are the same. If you know another owner who sold their bar for a certain amount, it does not automatically mean you will get the same value.
Involving the help of a reputable business broker is the first step in getting to a competitive, market-driven, and justifiable sale price of the business. There are tens to hundreds of bar opportunities on the market at any given time, and a buyer is approaching yours from the perspective of an investment. They are going to pay money for either a business or a job that will return their initial investment in some amount of time.
The amount of return and the length of time it takes to recoup the investment, or sales price, is the ultimate determining factor in whether your bar is sold or not. It is often helpful if the seller were to take the place of the buyer and ask themselves, does the capital expense in comparison to the return on investment make sense for the amount of work I must do? Does the business have growth potential or at the very least, the ability to remain consistent year over year?
Working with a qualified and seasoned broker who specializes in business transactions will make the daunting task of selling your business more streamlined and successful.
Financials in Order
All the points above are important, but arguably the most important piece to selling your bar is the quality of your financial record keeping. There is a direct correlation between the value of a business and the quality of the financials. One important piece to remember, in a cash business like a bar, you are only able to represent the revenues of the business that can be reconciled and the main tool for a buyer to confirm the top line revenue of the business is on the tax returns.
Ideally, you would like to have the last three years of income statements, or profit and loss statements; and balance sheets with corresponding tax returns. These financials will provide the best tool for your broker to come to an opinion of value of the business; and shows the buyer the level of net income, or Seller’s Discretionary Earnings (SDE), the business makes for the owner. The sale price of the business is directly related to level of profitability, or SDE. In the event your bar is not profitable, then the bar will likely be sold for a number close to the market value of its assets; which includes the liquor license, if it is a #6 or #7.
Selling your bar can be a complex process, but following these steps and hiring a reputable broker will allow you to position your business in the best possible way.
By Bryan Vitagliano, the leading restaurant and bar broker at Strategic Business Brokers Group a brokerage firm in Scottsdale, Arizona. Collectively, they have helped dozens of restaurateurs and bar owners sell their business.