Whether you’ve just recently opened a trendy nightclub or have been running a profitable bar for years, the time to begin preparing to sell your bar business is now.
Six out of ten U.S. business owners plan to sell their companies over the next decade—a noticeable increase over previous years. Many are baby-boomers, with an eye on selling their business to fund their retirement. The number of nightclub, bar, and restaurant owners who plan to exit their business in the next ten years is at least keeping pace with the national average.
That means sale preparation and strategy should become much higher priorities for many bar and nightclub owners. Why? In a word: competition.
The sheer volume of bar businesses that will appear on the market over the next several years means that buyers will be presented with more options and more purchasing opportunities. While high unemployment will create a seller’s market when credit markets ease and buyers have greater access to capital, bar and nightclub owners who will receive top dollar for their companies are those who invest time and energy now to make their companies stand out in the crowd.
Driving the point home even further are the number of owners who put off selling their business in 2008 and 2009 due to the down economy. With business-for-sale transactions falling off as much as 28% in 2009 alone, many on-premise industry owners who have delayed their exits may now be poised to enter the marketplace, resulting in increased exit competition.
But regardless of current market conditions, the reality is this: Most bar businesses simply aren’t ready to be sold when their owners decide to list them. In this industry, the timeline for preparing and selling a business is much longer than most owners realize.
The brokers we work with at our online properties BizBuySell.com and BizQuest.com, the Internet’s largest and most comprehensive online business-for-sale marketplaces, recommend that owners spend one to two years preparing their company for sale—that’s in addition to the five to twelve months it typically takes to identify a buyer and close the sale.
“Bar, tavern, and nightclub sellers must intensely focus on building value by optimizing the key drivers of the business,” notes business broker Domenic Rinaldi of Chicagoland Sunbelt. “It is critical to continue to grow the business even after the decision has been made to sell the business.”
To Sell YOUR Bar ?
To sell a bar, owners need to see their company through the eyes of a prospective buyer. This is the case for every company in the industry, regardless of whether it’s a high-end luxury bar and lounge in New York City or a local corner tavern in Peoria, Illinois.
It is impossible to begin the process of preparing your business for sale and positioning it in the marketplace until you understand what buyers want in a bar business. Like most investors, buyers of bars are risk-averse. They are looking for a sure thing—or at least a business that appears to be closer to a sure thing than the other businesses on the market. In addition to a fair price, bar buyers are interested in acquiring bars that have proven track records, are easy to operate, and can be relied upon for profitability and future growth.
Keep in mind that (just like you), prospective buyers want to earn enough profit to make a living from your company—immediately. If buyers are told that they will need to increase sales, reduce expenses, or completely rework the operation to do so, their interest in your business will quickly wane.
At the same time, buyers are on the alert for red flags that could translate into problems after the sale. Much of the preparation process for selling a bar involves systematically removing these red flags in order to make your company as appealing as possible to the marketplace.
Starting right now, you can begin to address several obstacles that often present a challenge to a smooth selling experience—regardless of when you plan to put your business on the market. Here are a few problem areas you’ll want to be sure to address:
Inadequate Financial Documentation
Financial records are one of the primary tools buyers rely on to assess the health and viability of a business. In many cases, they can also be a crucial part of the valuation process. Although you might be comfortable keeping receipts in a shoebox, prospective buyers will be less than impressed. In today’s on-premise industry, computer-based accounting systems are the norm. If you haven’t done so already, start transitioning your books to an electronic recordkeeping system and contract for an outside review of your company’s financials with an established accounting firm.
Lack of Adequate Cash Flow
Not surprisingly, cash flow is another key factor for buyers. For most business owners, cash flow is the number one measure that determines if a business can meet their lifestyle needs. A company that is incapable of demonstrating a plan for continuing profitability and cash flow quickly loses its luster in the eyes of the marketplace—even if your business has a history of healthy bottom lines. Be prepared to show buyers a trend of profitability and cash flow improvement as well as solid reasons why you expect that trend to continue for the next several years. If your company is currently not performing in the black, make hard decisions and do what needs to be done in order to return the business to profitability as soon as possible.
Staffing Problems
Many business owners enjoy a special relationship with their employees. Buyers, however, are less concerned about your relationship with your employees and more concerned about your staff’s ability to function at the highest levels, especially after you’ve moved on. Like it or not, concerns for your employees will ultimately need to take a back seat to the selling process itself. If your workforce needs to be resized or reallocated, do it now and create a professional staff that will be a selling point for buyers. In addition, make sure you have a continuity plan in place that will ensure that key employees can be retained to help run the business for the new owner.
Lease Issues
Time and again, I have seen lease issues bring an otherwise smooth sale to a grinding halt. With some exceptions, buyers envision themselves operating your bar business at its current location well into the foreseeable future. If the lease is scheduled to expire in a year or two, the new owner could renegotiate a longer lease with the landlord after the sale. But without any guarantees, a lot of buyers will hesitate or focus their attention on businesses with more secure space. To prevent this scenario from unraveling, proactively address lease issues now by negotiating with your landlord to secure an option to extend the lease with favorable terms for the buyer.
Although the process of preparing your bar for sale may seem overwhelming, the preparation process can improve your company.
The bottom line is simple: Regardless of when you plan to sell your business, now is the time to start preparing your business for sale. Your business’ current performance will improve and you will position yourself to achieve your sale goals when your bar business ultimately hits the market.
By Mike Handelsman, general manager of BizBuySell.com, the internet’s largest and most heavily trafficked business-for-sale marketplace. BizBuySell currently has an inventory of more than 50,000 businesses for sale and more than 750,000 monthly visits. BizBuySell also features a business valuation tool that draws from one of the largest databases of sales comparables for recently sold businesses, and one of the industry’s leading franchise directories.
