What You
Are Buying When You Purchase a Restaurant, Bar or
Club
When the buyer is purchasing a restaurant, bar or
club the purchase includes: a. Fixtures and
Equipment, b. Licenses, c. Leasehold Improvements,
d. Premises Lease, e. Goodwill, f. Cash Flow and g.
Covenant Not to Compete. All of these items are
discussed in depth as indicated below.
a. Fixtures and Equipment. This includes all
the fixtures and equipment which are included on the
equipment lists which accompanies the purchase
contract at the time the offer is made. The
equipment list is signed by the buyer and seller for
the transaction when the offer is made and again it
is signed by the seller and buyer when the buyer
takes possession of the premises to assure that all
of the equipment is in place immediately before the
close of escrow. In many situations the seller has
personal items such as family paintings and
artifacts, unique equipment such as a pasta maker
and other personal items which are not included with
the sale. In this case these items should be
indicated on the fixtures and equipment list as
items not included with the sale to make it
perfectly clear to the buyer what is and what is not
included in the sale. There are times when some of
the equipment is leased or rented. If the equipment
is leased it may be a condition of the sale that the
buyer formally assumes the equipment lease at the
close of escrow. If this is the case the
leased equipment list should be disclosed to the
buyer before the offer is made and the lease will
include the monthly payments and the current balance
on the lease. Most equipment leases are set up so at
the end of the lease term the buyer pays a fixed
nominal amount (sometimes only one dollar) and then
the buyer owns the equipment. Another possible
situation is that some of the equipment is rented in
which case the buyer normally has the option to
terminate the rental agreement if he desires and
have the rented equipment removed from the premises.
There are some situations where all the equipment
may be owned by the landlord and the tenant is
responsible for maintaining it and replacing it when
necessary during his tenancy. Usually attached
fixtures such as duct systems and hoods, some built
ins such as the bar, counters, back bars, etc.
belong to the landlord when the tenant vacates.
These items are normally spelled out in the premises
lease with the appropriate schedules attached.
b. Licenses. Included in the sales price are
the operating licenses such as any food or bar
permits necessary to operate a restaurant, bar or
night club and any other licenses such as alcohol
beverage control licenses, entertainment licenses or
franchise licenses, etc. Although these license are
included in the sale the buyer has to go through a
transfer process which requires them qualifying for
these licenses and paying transfer fees.
c. Leasehold Improvements. These include the
heating, ventilating, air conditioning, plumbing,
and electrical systems which the tenant has use of
during his tenancy. The tenant is usually
responsible for the maintenance and/or replacement
of these items although these items belong to the
landlord at the end of the lease and can not be
removed from the premises.
d. Premises Lease. The premises lease is
probably the most valuable item one is acquiring
when they purchase the business. The premises lease
is a legal contract between the tenant and landlord
which gives the tenant the right to occupy the
premises. The lease is analogous to a promissory
note to the bank. It is a legal contract which
obligates the tenant to make a designated number of
payments for a designated number of years to the
landlord. For example if the tenant has a five year
lease and the monthly payments are as follows: year
1 - $4,000 ($48,000 per year), year 2 - $4,250
($51,000 per year) , year 3 - $4,500 ($54,000 per
year), year 4 - $4,750 ($57,000 per year), and year
5 - $5,000 ($60,000 per year). This translates into
the tenant being legally obligated to pay the
landlord $270,000 ($48,000-year 1+$51,000-year 2
+$54,000-year 3 +$57,000-year 4 +$60,000-year 5 =
$270,000) over a five year period. The terms and
conditions of a lease include paying the rent on
time, maintaining the premises in good condition and
respecting the rights of adjoining tenants and
neighbors in the area. I recommend that in order to
control your business destiny you should ideally
have a five to ten year base term with several five
year options with a clear definition of your rent
payments for the entire projected duration of your
stay at the premises.
e. Goodwill. This is the reputation of the
business occupying the premises immediately before
the new tenant takes possession of the premises. It
consists of the trade name of the business, the menu
and menu items, all the business systems – service
systems, standard operating procedures, intellectual
property, trade marks, phone numbers, fax numbers,
email addresses, websites, etc. If you are buying a
going concern business which is a business which is
making money then goodwill is extremely important. A
buyer buying this type of business will generally
not change anything about the business and will try
to run the business exactly as the prior owner did.
Even if you are not buying a going concern business
and are buying an assets sale goodwill is still
important as the prior business drew some customers
and was most likely a similar business to the one
you will operate and some of their customers will be
potentially your customers.
f. Cash Flow. If a buyer is buying a going
concern business, a business that is profitable, the
buyer is also acquiring the cash flow or profits of
the business. The cash flow of the business is an
important component of the purchase price. A buyer’s
motivation for buying a going concern business is
largely driven by the profits the business makes.
Gong concern businesses will sell for 1 to 3 + times
yearly adjusted cash flow. Yearly adjusted cash flow
is the actual cash flow benefit that the owner
receives yearly from running the business.
g. Covenant Not To Compete. When you purchase
a business you can negotiate with the seller that he
will not compete against you within a certain radius
from the business being purchased in similar
business for a certain number of years from the
close of escrow date. This is to protect you from
the seller stealing your customers which is a major
component of the price of the business you are
purchasing which is called goodwill as discussed
above.
Nectar Wine Lounge
Trio
Nectar Wine Lounge at 3330 Steiner Street in San
Francisco and is the product of great passion for
the world of wine and the life style of which
revolves around that world. Nectar offers 50 wines
by the glass as well as tastes and flights. The
bottle program consists of over 400 selections
spanning the globe.
All the wines are available for
retail purchase as well. Nectar also offers a
seasonally adjusted small plate menu, focusing on
local products from farmers markets, to compliment
all of the different styles of wine. Nectar hosts
monthly wine classes featuring different regions and
varietals alike, all paired with small bites.
Nectar is managed by 3 creative entrepreneurs who
have a passion and appreciation for wine. Chris
Potter who has extensive experience in hotel and
restaurant management is a certified sommelier. He
heads the operational arm of the team. Anton Hicks,
who is also a certified sommelier, brings different
elements of wine talent and contributes useful input
given
his experience in information technology and strategic consulting. Achim Fehlker has a deep
understanding of wine and the wine industry. He is a
certified sommelier who has traveled to many of the
world’s wine growing regions and whose extensive
business experience lends continued expertise to the
operation
Restaurant Realty has recently completed a
transaction with the Nectar Team and wish them all
the best in further endeavors.
