There are over 50,000 bars, pubs, microbreweries and night clubs in the US alone. These businesses tend to generate good cash flow and attract loyal customer following, especially if the bar concept is well-focused on a particular demographic.

With health benefits of moderate wine drinking planted in the public subconscious, and popularity of local microbrews, many pubs and bars are enjoying solid growth and steady earnings.

Valuing a bar is all about earnings

Business value of a bar or pub is driven by its profitability. A key measure of the bar value is how much discretionary cash flow it throws off.

A number of factors affect how profitable, and therefore, valuable a bar is. The top hitters to check:

1. Location

Bars and microbreweries often are a gathering place for the locals. If you target a specific market demographic, the bar should be located where these people like to spend their time. Ample parking is very important.

2. Rental expenses

Lease expenses and terms are a big factor affecting bar values. Successful bars keep theirs under 8% of sales.

3. Liquor license

Liquor license is a requirement to generate sales, produce profits and build a bar’s value. A liquor license is especially valuable if the number of licenses in the area is limited, deterring competition.

4. Whether drinks are measured or free poured

How the drinks are served affects the bar’s cost of goods and its cash flow. A rule of thumb is to keep the drink costs under 30% of the price.

5. Additional profit centers such as on-premises vending

On-premises vending of products and games is a frequent addition to the bar’s revenue. This also helps keep the customers in longer, often increasing the drink sales volume.

6. Payroll expenses

Payroll expenses within 25% of the bar sales are the industry norm.

Business valuation methods for bars and pubs

Business valuation based on income is the typical choice for valuing bars and pubs. The Multiple of Discretionary Earnings method is an excellent choice because it lets you figure out the effects of various financial and operational factors into the bar value.

Since bars sell often, you can value a bar by direct market comparisons. Multiples of discretionary cash flow are the preferred choice. You can also price a bar based on its revenues. Even then it is a good idea to check your business valuation results by using the cash flow based multiples.

You will find extensive coverage of business values for bars and pubs in the ValuAdder Market Comps Tool. Based on the current business sales, the Market Comps give you an instant estimate of the business selling price range, average and median values.

Bars are rarely valued based on assets. This is because many business buyers change the bar concept and invest heavily into upgrading the assets, such as furniture, fixtures and equipment. By convention, the business-owned real estate is broken out and valued separately.

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