Raising the Bar on Valuation
How to Value that Place Where Everybody Knows Your Name
We’ve spend a considerable amount of time over the past few months venturing into the value of craft brew industry, but what about the hub of it all…the bars in which these brewers are hoping to be placed?
There are many components involved in valuing a tavern/bar establishment. Above and beyond the sheer financials of an establishment the following factors weigh heavily:
- Liquor license: What is the current market value for this coveted license and how many are available within the local market? Ultimately, the license serves as a “floor” value regardless of profitability.
- Location: Is the establishment in a prime location that attracts a good crowd of both familiar faces and new patrons?
- Lease: What are the terms of the lease? How much time is left and what renewal rates are in place?
- Inventory: A bar’s inventory is purchased above and beyond the agreed upon price of the business (i.e. X times seller’s discretionary earnings PLUS inventory at cost).
- Opportunity to Improve Margins: Any episode of Bar Rescue will illustrate that there are numerous small tweaks that can significantly impact the bottom line such as measuring and monitoring bartender “pours”, proper pricing, hiring the right staff, improving/refreshing the facility’s appearance, and putting in place proper management, among other things.
While we normally utilize “rules of thumb” only as guidelines to ascertain the current market, below are notable multiples provided from various sources:
- 50% of annual sales (TheBusinessBroker.com)
- 40% of annual sales + inventory (BizStats.com)
- 2-2.5 times SDE plus inventory (Business Valuation for Dummies)
- 4 times monthly sales plus liquor license and inventory (Business Valuation for Dummies)
When it comes to selling your tavern/bar, proper planning and research is critical. It is best to work with your financial and business advisory team early on to assess the best ways to boost net earnings.[alert title=”Take Away Bonus” “Success”]
Cheers to all of our blog readers this holiday season. Time to bulk up on some milk and cookies – or better yet, a cocktail that incorporates them both!
The Sugar Cookie Martini
- 6 oz. vodka
- 3 oz. butterscotch schnapps
- 3 oz. milk
- Sprinkles for decorating rim