Taking over an already existing structure is a good way to start an entrepreneurial adventure without having to create your own business from scratch.
This doesn't necessarily mean, however, that the process is easier - as you still need to follow a specific set of steps before the take over can be successful.
Once you've given careful consideration to the stages mentioned below, you'll be in the best position to take over a bar with confidence. So without further delay, check out our top tips on how to take over a bar...
The key steps of taking over a bar
Checking out the bar premises
First of all, you need to decide whether space itself fits within your vision for the business. Once you've settled with one, it won't be so easy to change it - so it's vital that you give this step very careful consideration.
- Is it big enough?
- Is it well-arranged?
- Does it meet the health and safety requirements imposed on hospitality businesses?
Finally, you'll need to read over the former owner's lease agreement - paying special attention to conditions concerning the renewal of the lease and whether the rent is capped or not.
Studying the location and competition
Next within our guide on how to take over a bar, it's time to undertake an assessment of the bar's location and nearby competitors.
Make sure you check:
- Whether it's located in a busy or quiet street
- If it's accessible by public transportation or not
- Where the closest car park is to the bar
- Whether there are construction works planned in the near future that are likely to obstruct entrance to your bar
These factors will have a direct impact on the success of your business, so make sure you're as thorough as possible when gathering data related to each one.
Getting to know the clientele
Taking over a bar means becoming acquainted with its existing customers.
You need to know the make-up of the customer base. Is it composed of regulars (such as people who come in for after-work drinks or local residents) or is there a high turnover of tourists visiting nearby attractions or people coming in and out of the city?
Finding out this information will enable you to determine the bar's typical rush hours, the average spend per customer and the most popular drinks being served.
Assessing the quality of existing equipment
Examining the quality of a business's existing equipment is an essential part of taking over a bar. Indeed, if you don't like what you see after carrying out this assessment then you may decide it's not worth taking over the bar at all, or you may want to re-negotiate the selling price.
First, check that the equipment is working efficiently. When doing so, ask the owner for the receipts for each piece of equipment, so you can keep tabs on when there were bought, what make they are, and check whether their guarantees are still valid. Make sure you also check whether any equipment has been taken in for repair and if so, what work was done to it and when.
Beer taps, dishwashers and display fridges are particularly expensive. If you feel that the bar's existing ones might need replacing, you could factor these costs in when negotiating the sale of the bar with its owner.
Analysing the bar's existing menu and prices
Even if you'd like to completely revamp the image of the bar you're taking over, you need to analyse what's currently being offered, including its entire menu of drinks and its bestsellers.
Running such an analysis will give you a better understanding of how the bar operates, its profitability and, most importantly, its working capital requirements.
Examining the financial performance of the bar
To evaluate the potential profitability of the bar you'd like to take over, checking out its previous financial performance is essential.
To do so, you'll need to check out the development of the following factors over the course of 3 years:
- Turnover: is it increasing or decreasing? In both cases, is the evolution linked to the volume (more or less consumption of drinks) or to the value (decrease or increase in the average price of a drink)?
- Gross margin: are costs of goods sold and food costs stable? Can the margin be improved and how?
- Payroll: how many bar staff have been employed? What are their salaries? Have there been recent, frequent increases?
- Gross operating surplus: is the bar generating sufficient profit to develop the business and compensate investors?
- Working capital requirements: can you free up cash by reducing the level of inventory or negotiating better payment terms with suppliers?
- Investments: how much did the previous owner spend on maintaining the bar's equipment? Will you need to invest in new equipment at the time of the takeover and for how much?
- Operating cash flow: is it positive and, more importantly, is it high enough to keep the equipment in good condition and meet the bar's financial commitments?
Checking in with the owner as to why they're selling
Before officially agreeing to buy over the bar, it's also important to consider the owners' motivations for deciding to sell in the first place: are they genuine, or does the owner simply suspect that their bar's profitability is set to decline?
Finally, as with any sale, it's advisable to enlist the services of a lawyer to verify that the sales contract is legally valid and doesn't contain any clauses that might place you at a disadvantage.
Two ways to take over a bar
Once you've looked over each of the above points on how to take over a bar, it's time to look at the structure for the transaction.
There are two different ways to take over a bar:
- Creating a new company that will buy the bar's assets
- Buying the shares in the bar from its former owner
Creating a new company
The first possibility for the buyer to create a new company, which will acquire the bar by buying all or part of its assets.
With this type of arrangement, the financing of the takeover will then be set up at the level of the new company. This presents a major advantage because it will allow:
- To use of the cash flow generated by the company to repay any loans without any tax friction
- To back the financing of the takeover with the bar's assets, which lessens the risk for banks providing a loan as they'll have assets to seize in the event of bankruptcy.
Buy back the shares of the bar from its former owner
You can also choose to take over a bar by purchasing the shares of the company operating the bar from the previous owner.
In this case, you will have two options:
- Buy the shares directly: with this arrangement, the buyer himself will have to finance the takeover, and his borrowing capacity will be assessed on the basis of the value of his assets and income.
- Buying the shares via a holding company: with this arrangement, the holding company will have to finance the takeover, and its borrowing capacity will be evaluated on the basis of the expected dividend payments from the acquired company.
Writing the business plan and securing financing
The next step in taking over a bar is putting together a business plan to ensure that your venture can be profitable and secure funding.
The business plan of a bar is made up of two major components:
- A financial forecast that aims to highlight the expected profitability of the business and the initial financing requirement.
- A written part that presents, in detail, your project, the team, your business strategy, and your medium-term objectives.
The business plan is the document with which you will try to secure financing from your bank or potential investors, so you need to make it impeccable.
If you are not used to writing business plans, a good solution would be to use an online business plan software.
There are several advantages to using specialized software:
- You are guided through the writing process by detailed instructions and examples for each part of the plan.
- You can be inspired by already written business plan templates
- You can easily make your financial forecast by letting the software take care of the financial aspects for you.
- You get a professional document, formatted and ready to be sent to your bank.
If you are interested in this type of solution, you can try our software for free by signing up here.
Now that we're at the end of our guide, we hope you have a better idea of how to embark on your journey of taking over a bar with confidence. If you have any questions at all, please don't hesitate to get in touch with our team.
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