There were few industries hit harder by the COVID pandemic than the bar industry. Nevertheless, in a post-pandemic world, many bar owners are receiving optimistic valuations and selling at or above fair market value. This guide discusses the selling process for bar owners.
About The Bar Industry
Bars, along with taverns, nightclubs, saloons, lounges, and other drinking places, primarily serve alcoholic beverages. Most also have food services, but they primarily drive profits from their drink menus in most cases. The most recent bar industry data includes:
- There are approximately 75,000 bars in the United States
- There was a -1.7% annual growth for the bar industry from 2018 to 2023
- The bar industry generates $26.7 billion in annual revenue
- The annual profit for the bar industry is $1.8 billion
- Experts predict a sizable increase in annual growth (1.6%) from 2023 to 2028
For many investors and entrepreneurs, owning a bar is at the top o a bucket list and fulfills a fun dream they had during their college days. The fact is there are few establishments that are more fun to operate than a bar. Additionally, they are highly profitable and sustainable. All of this adds to a seller’s market, especially for bar owners who have shown sustainability with excellent profits in recent years.
A Market-Based Valuation for Bars (With Rule of Thumb Data)
The first step for any business sale is a valuation. After all, you cannot adequately price your company without it, and an improperly priced company could lead to selling below its value or not selling at all. Business brokers use a market-based approach specifically for bar owners who are planning their exit strategy. This involves the use of economic metrics such as your seller’s discretionary earnings (SDE) along with rule of thumb data (also called acquisition multiples). The rule of thumb data for the bar industry is as follows:
- Bars sold between 2.13 and 2.20 times the Seller’s Discretionary Earnings (SDE)
- Bars sold between 1.85 and 2.40 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Bars sold between 0.31 and 0.37 times the annual net sales
Sigma Mergers and Acquisitions also goes beyond rule of thumb data, although your financials are a great starting point and often the most important aspect for potential buyers. In addition, we also consider your unique competitive advantage, location, bar reputation, workforce quality, growth potential, and reason for selling.
You should also check: How to Sell a Bowling Alley
How to Sell Your Bar in 5 Steps
Although defining the sales process can be tricky given the unique complexities involved with every sale, there are certain steps you can expect. Below is a list of the steps and a general description for each:
- Set your exit strategy goals
- Prepare for the sale
- Find a buyer in a confidential manner
- Complete due diligence
- Close the sale
1. Set Your Exit Strategy Goals
First and foremost, you should establish your sale goals. This includes your asking price, which is largely determined by your business valuation that we discussed above. You may have non-financial goals as well. For instance, you may want to ensure your bartenders remain on staff and the buyer maintains the same prices you currently have. Of course, these are examples, and your personal goals may look much different.
2. Prepare for The Sale
Next, you need to prepare for the sale, which helps ensure a smooth process during negotiations, due diligence, and closing. Many of the documents you need have already been prepared when determining your valuation. You may need to collect the rest of the documents from your financial institution, the Alcohol and Tax Trade Bureau (TTB), and your local state government. Some of the documents you will need are:
- Tax returns
- Profit and loss statements
- Balance sheets
- Business license
- Alcohol license
- Employee lists
- Insurance policy
It is important to remember that this is far from an all-inclusive list of documents. Your business broker can work with you to prepare all documents you will need to sell your bar.
3. Find a Buyer in a Confidential Manner
Your business broker ensures you maintain confidentiality while finding a buyer who is best able to meet your goals for sale. They are able to accomplish this in several ways. First, they leverage private databases, networks, connections, etc. In some cases, the use of a blind listing or confidentiality agreements can help ensure confidentiality. Despite not listing privately, your broker is able to show your company to hundreds of potential buyers. They also help you negotiate a deal for the right price (and other terms). This process ends with a signed letter of intent (LOI).
4. Complete Due Diligence
Of course, the buyer needs an opportunity to ensure all financial and legal details you presented in the sales memorandum and negotiations are accurate. They receive this opportunity during the due diligence stage. This is a moment where the buyer requests and reviews financial information, legal information, and daily operations of your bar.
As discussed above, this is why preparing the documents before the sale begins is incredibly helpful. Although this is an important step for the buyer, it should not be entirely open-ended to the point they request unnecessary documents or take an extended amount of time to review and ask follow-up questions. To prevent this, your broker will implement a due diligence timeline (or a due diligence map) to help ensure a speedy process.
5. Close The Sale
Last but not least, you will close the sale after due diligence. This includes a review of the purchase agreement, attaining final signatures, confirming payment, and transferring ownership and operations of your bar to the buyer.
Selling a Bar? Contact The Business Sale Pros at Sigma Mergers and Acquisitions
Our business brokerage helps bars (and other restaurant and nightlife establishments) sell in a stress-free process. If you own a bar and are planning or considering your exit, then contact the professionals at Sigma Mergers and Acquisitions. We can provide you with a free consultation and no-obligation business valuation.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!