Not everyone builds a bar from scratch. If you’re in the market to buy a bar that’s already been built, you need to know what to look for to improve your odds of a successful start in this business.
Buying a bar and finding out a couple months later that you must spend an additional $100,000 to repair critical systems and elements you weren’t previously aware of can kill your enthusiasm…and your wallet.
If you know what to look for during your initial inspections, you’ll avoid many costly problems. Here are some things to watch out for when you’re buying an existing bar.
1. Deteriorating Infrastructure
All equipment has a limited shelf life and you must be able to evaluate the condition of all systems prior to buying. Typically, people with no prior background in hospitality struggle with this task. Without firsthand experience, it’s hard to know what state a system is in just by looking at it. However, a chef who has used a poorly functioning stove and replaced it with a new one knows all the signs of wear and tear and can also estimate how much life a used one has left.
It’s also important to know how to spot subpar, code violating or failing construction. I know one bar operator who had no prior knowledge in the industry and bought a bar that had a keg room without properly insulated walls, floors and ceilings. It was basically just a storage room with painted drywall, tile flooring, and a suspended tile ceiling. Since the cold air was escaping rapidly through the ceiling, the refrigeration unit was utilizing more energy. That, of course, was increasing the electric bill. Also, since temperatures weren’t consistent, the kegs were constantly foaming. That resulted in thousands of dollars in lost product each month.
Before you buy a bar it’s a good idea to bring in your entire team of contractors and staff to examine everything. If something isn’t right, tell the owner to fix it before you buy, or negotiate the payment so that it’s lower. You must ensure that the venue is functional before you purchase it.
2. Lease Agreement
If you’re buying an existing bar, you need to know all the details of the lease. Take the time to really examine the lease agreement. You must know what term is left on the lease and exactly what’s included. If you’re assuming the lease, you’re responsible for all the conditions agreed upon by the previous owner.
Therefore, it’s a good idea to send the lease agreement to your lawyer for a cross examination, as they can bring up some points that you may not have considered. You don’t want to sign an agreement that leaves you on the hook for things you weren’t aware of—doing so can take massive chunks out of your resources.
3. Correct Business License
Some bars operate under an incorrect business license. That can become a major problem if the license needs to be updated, keeping the bar from realizing its maximum potential.
For example, I’ve met some people who have bought neighborhood pubs which are licensed as restaurants. In Canada, that prohibits the presence of slot machines, a major source of revenue for the neighborhood pub business model. Operators without gaming machines are at a major competitive disadvantage. While it’s possible to get business licenses re-issued, it can become a headache dealing with the government.
I know one person who bought a bar with slot machines, then found out that although the old owner had been approved for the slot machine business license, he as the new owner was not. He then found out that the application process took 6 to 12 months. Until the application was completed, the existing machines weren’t licensed and were removed when he took possession of the business. A major source of revenue that he based his initial estimates on was removed, solely because of the wrong business license.
Before you buy a bar, make sure you understand all the different kinds of business licenses and make sure you have the right one.
4. Who Has Keys and Access Codes?
You must know everyone who has access to your venue just in case you get broken into. People like janitors, managers, and even some delivery companies typically have keys and alarm codes. That means they’re able to get into the building when no one is around.
Read this: Buying a Bar? Ask These 4 Questions First!
It’s a good idea to change all alarm codes and locks as soon as you take possession. This will ensure that only authorized parties will be given access to your building and remove uncertainty if and when a break in happens.
5. Tenant History
It’s not a good idea to try and buck the trend if multiple operators have tried and failed at a particular property. If everyone has failed at the location you’re considering, it’s actually very likely that the location simply isn’t feasible for a restaurant or bar operation.
This can be for myriad reasons, including but not limited to: unreasonable costs (can take the form of property tax, high lease rate, or operating costs), improper construction, proximity to traffic, bad landlord, parking issues, and poor access. Some locations just can’t and won’t work well despite the skill level of the operator.
I always recommend asking yourself—and then the seller—a few simple questions before buying a bar:
- Why are they selling the business?
- Are they failing and trying to get out of a bad business?
- Has this operator or these operators done well and just want to move on to a new opportunity?
You need to do what I do and dig deep to find out why a business worked or didn’t work. Always check the tenant history and stay away from locations where many have tried and failed. If everyone before you has failed in a relatively short timeframe, that might be an indication to stay away.
Read this: The 4 Worst Reasons to Buy a Bar
For more expert advice like this, attend the 2019 Nightclub & Bar Show in Las Vegas this March. Register now for the opportunity to take advantage of in-depth workshops hosted by industry leaders, education sessions from the top experts in this business, keynotes from industry icons like Jon Taffer, Jim Meehan, Tanisha Robinson and David Kaplan, unrivaled networking opportunities, and incredible parties at the hottest nightlife venues in the country.