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Running a Restaurant/Bar/Restaurant Acquisition

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QUESTION: Hi Chase,

Currently, I live in Chicago and in the process of starting my own investment firm, and looking to acquire an existing bar/restaurant in the southern California market, primarily San Diego.  I feel an existing establishment provides me with the necessary infrastructure and customer base to provide immediate minimal cash flow, while I implement changes to the systems, management, menu, etc. to increase profits.  Although this place will have some of your traditional “bar food”, I’m a firm believer in “fresh” and “healthier” food products will always win out, even in a bar scene.  Also, our theme will be centered around entertainment, as I don’t feel enough bars have anything at all that entertains me anymore, people just stand around and stare at each other… I plan to be hands on initially, and then look for additional acquisitions when the place is operating satisfactory from a financial perspective.

Even though I don’t have previous restaurant ownership experience, I have a solid back round in financial and business analysis and spend a lot of time studying and understanding operational procedures of bars/restaurants, as I go to them a lot!!  Also, I will have two close friends working with me whom have years of bar management experience.

I plan to acquire the establishment on an all cash basis and believe I have all the appropriate financial spreadsheets to track and monitor the business operation.  I also plan to utilize QuickBooks Pro and specifically customize the existing POS system.   I have been educating myself of COGS percentages, and would like to stay @32% on food and 22% on alcohol, and plan to strictly monitor all purchasing, sales, percentages and ratios.

There is a lot of information out there and I’m trying to streamline what are the most vital components from a monitoring perspective and how should I keep records, etc.?  Also, I guess I’m looking for some constructive criticism and an overall opinion?

Thanks in advance,

Justin

ANSWER: Hello Justin, Thanks for the question – First, I need some clarification – are you planning on moving to SoCal – if not - there is no “hands on” from many miles away.

Secondly, although many people are running/owning nice operations for themselves – I wouldn’t devote any start-up energy to any hospitality business – unless I thought that my concept was strong enough to build up & out. A one–off is like a trap – easy to get into, but hard to get out of -

Dream big - getting something going that could really take-off --- is only more thought on the front end – not one more ounce of work after you begin.

The best restaurants/bars are doing enough business that they could sell for a premium – which might make sense to a buyer if the location was in a constant traffic feed and they wanted the business for the long haul. You can find many bars for sale that are doing “some business” and they might look like “turnaround” opportunities - but turnaround to what?

The pool for potential bar owners is quite small – compared to other opportunities that entrepreneurs might pursue. And, most bars with entertainment are in the fashion business – one second you’re in – the next you’re out. You mentioned that you are part of the target market (and already bored) – it may be hard to project into - but every decade (20’s, 30’s, 40’s, 50’s, etc.) bars become a lesser friend & more of a “frienemy” – whether you are a customer or an owner – because people and alcohol are a volatile mixture and stupidity (read as liability for ownership) goes up with every drink served.

If you are thinking about becoming a bar aggregator and rolling up under-performing bars to add in your portfolio – please notice the small number of national bar chains. If you’re lucky people go out 2 or 3 times a week – yet they eat 3 or 4 times a day – you do the math on the income potential variations.

You mentioned systems, management & “fresh/healthier” food changes - in my experience the telling factor for longevity is the “culture” of the business and its purpose, mission and values. A unique competitive advantage in hospitality can come from your location, pricing, product, promotion and/or systems - but the hardest to rip off is your people. If I were going to suggest any additional “study” on your part – I would start here - the “how” of how are you going to discover, develop & take care of your people & how your people going to take care of the guests.

And, really I wouldn’t put a toe in these waters unless something about the industry (besides making dough – because there are easier ways) really pumps you up – There will be many fires to fight and something bigger has to keep you happy – or you’ll burn out.

I am in no way attempting to dissuade you from your plans – This is merely the “eyes wide open” overall opinion contribution you requested. At least think about where you’d like to be in 10/20 years - not just where you are now.

Peace & Luck,
Chase


---------- FOLLOW-UP ----------

QUESTION: Hi Chase,
Thank you for your insightful outlook and quick response.  I definitely plan on moving back to SoCal, as I don’t think it would be feasible to be a “hands on” owner from 3,000 miles away.  I’m looking at this from more of a long term cash flow basis, and understand acquiring an existing establishment that are already operating efficiently will cost a premium in the location that I would like to be in.  But that is why I have an open mind about acquiring something that is doing really well versus one that is underperforming, but has good “bones” and infrastructure to work with.  When evaluating underperforming bars the research has lead me to management and customer service at their biggest issues, which are components that I feel are most important, with customer service being #1.  Since you mentioned the buyer pool for bars, I’m interested to learn more about the competition, and if there is a significant amount of capital flooding this market?  Given current financing and capital markets, I would think not, but I have heard conflicting outlooks..
Also, my investment firm isn’t going to focus just on the hospitality industry in an attempt to make it rich turning around bars, given my extensive career, experience and education in real estate, the hospitality business will be a vehicle to fund other bares, as well as real estate ventures.  In additional to the hospitality and real estate industry, I also have an extensive backround in the fitness industry and currently looking into LA Boxing franchise.  If there are 3 things that I know, its real estate, bars and boxing/working out, so why not do what you know and love…?  I know this may sound like a very ambitious plan, but I have made sure that I surround myself with the right team in place to allow me to maximize my time efficiency.  

The reason for what I’m doing is that I’m looking 10/20 years from now and where I want to be, and although I might not want to be a “hands on” bar owner forever, if done right, and with no debt I believe it could be a great long term “hands off” investment down the road.  
You also referred to dream big – can you please elaborate?   My plan was always to build up and expand.

Thanks again for your time and knowledge.

Justin

Answer
Buyer pool for bars –
Bars have always been/will continue to be a niche market. Most “sane” folks don’t want the “atmosphere” weaving through their lives. Mostly single guys run them ‘cause – you can’t have a decent family (read as w/kids) life – working mostly nights/all weekends/big holidays & many temptations arise when working at night/in a party atmosphere and most folks do not have what it takes to stay out of “trouble” (playing the field, addictions, illegal activities, etc.) There will always be a smaller buyers market, but it does have the advantage of interested parties being really interested (think conv’rtbl sports car buyers) – Many bars do have decent cash flow that can be leveraged – if the ownership stays on track. There really isn’t any institutional money looking at bars – too much liability exposure and bad press lawsuits.

Justin – I’m not trying to talk you out of bars – I made a great living - doing what you plan on doing – I’m just more seasoned now and I’d make sure that the food quality was equal to the bar quality I was shooting for (even if I had to create a fantastic “food truck” outside on the street) because “everybody” will be “kinder” (vendors, police, city managers, etc.) to your venture if you can fit food (restaurant/grille/café/public house/ etc.) into your name and mission.

Dream big –
Warren Buffet quote - “Run it like you’re gonna have it for 100 years and never sell” – that will give you the mind set to build a lasting foundation and the best possible sales price if the time comes. Do a search on a guy named Steel Platt – interesting story – Had some money – started some bars & clubs in CO – high profile success – lost it all – went back to SOCAL- sold cars & dreamed up –the YARDHOUSE – If you have any SOCAL connections - I’d try to get a call w/him/his top crew – they have been there/done that.

Happy to stay in touch/help if you need it

Chase
Leadagers@gmail.com  

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Chase LeBlanc

Expertise

I am the author of the new book, HIGH IMPACT HOSPITALITY: Upgrade Your Purpose, Performance and Profits!http://amzn.to/guebkx I am also the founder and CEO of Leadagers LLC http://leadagers.com/ (leaders who manage, managers who lead, "leed/i/jers") a hospitality industry consultancy. Our primary focus is in upgrading the purpose, performance and profits of restaurants, bars, food & beverage outlets and/or nightclubs. We have expertise in operations, start-ups, training, in-house leadership development and positive customer service experiences. 720.269.9537

Experience

My 30+ year hospitality career started as owner/operator of a nightclub development and management company. After successfully selling that business, I led within a variety of national and global operations as General Manager and multi-unit Regional Manager and I have also served corporations as Vice President and President. My extremely broad range of experiences includes leading training stores, entertainment complexes, fine dining establishments, high-volume theme restaurants, quick-service restaurants, dance/night clubs, comedy clubs, college taverns, dueling piano bars, pizzerias, high-volume sport’s bars, live music showrooms, retail stores and gift shops, fast-food concessions, catering/banquet facilities and high-volume arcades.

Publications
"Staffing Doctor" columnist for Hotel F&B Magazine http://www.hotelfandb.com/blog/?p=819#more-819 Top 10 - FastCasual.com http://www.fastcasual.com/article/140233/Top-10-ways-to-motivate-your-managers Core Hospitality - Quick Serve Leader - http://quickserveleader.com/article/making-hospitality-core-your-restaurant-brand-expert-corner Wise Words - Inside F&B http://insidefandb.com/2012/01/wise-words/ And have been a featured blogger for FohBoh.com In addition to my new book High Impact Hospitality,http://amzn.to/guebkx I have been a contributing writer for and/or my properties have been featured in Cheers, F&B, Food Service News, Hot Spots America, Military Club & Hospitality, Nation’s Restaurant News, Night Club & Bar and Top Shelf.

Education/Credentials
Attended the University of Colorado for three years and left to open my first nightclub at the age of 21.

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