How much of an offer to make on a bar? ?

Question

Absent owner, Profits (-$6k), sales $125k, COGS $55k, wants $49k? I think someones been skimming of the top. Not sure its worth the asking price. What would be a good figure to start negotiations? Inventory is about 2k. Haven't seen FFE list and no real estate involved. Estimate FFE around $10k-15k.

Thanks!

Answer 1

First, it is a bar, so yes somebody is skimming it is part of the business.  A quick analysis:  The high end of your estimate is tangible assets worth $17k.  The remaining $32k the owner is asking for will need to be in leases and licenses.  Liquor/tavern licenses can be very valuable in some states, less so in others.

With 125k sales ($342/day) COGS of 55k and a net loss of 6k, the bar has annual expenses of $79000.  Assuming the COGS rate (41.6%) and other expenses remain the same you will need to increase annual sales to 135k ($370/day) to break even, excluding your investment.  

You will need to increase sales to $152,500 ($420/day) in order to get your money back in 5 years.  

If you can increase sales to make your money back in 5 years a ROI of 20% sounds like a good deal to me.  

Make sure the lenght of the lease fits into your time horizon.

I hope this off the cuff analysis helps (I did not include taxes, and assumed all costs except COGS are fixed).  I don't think anyone can answer the question without more information, but this is a good starting point.