Posted by Dan on November 10, 2008 at 01:23:48:
I am in negotiations to purchase a well regarded wine bar/ bistro with a
seven year track record in a college town. I have the background to be
successful, and the drive to expand on the current business. I have $58,000
to invest and the owners are willing to carry a note for the balance I will owe
after a down payment. I'll run the numbers by you and hope for some good
insight without asking for any specific thoughts.I will first say that my grandmother was a culinary arts instructor and owned
restaurants, as did my mother, which I worked in growing up. I spent some
time in the Army and then moved on to supervisory positions in the industrial
construction/ oil refinery fields. I have been working in the bistro for six
months now in anticipation of the purchase and have earned the faith and
respect of the current owners and staff.The bistro is only open 4 hours for dinner 5-6 (depending on season) days a
week and has had steady revenue of $400,000 for the last several years on
that schedule. This translates to $85,000 pretax income for the owners after
all expenses.There is exciting growth opportunity both in a lunch hour as well as a late
night bar hour. It is centrally located between the three destination bars in
town, with one sitting a block north, one three doors south and one a block
east. Their weekly liquor only income ranges between a low of $10,000 and
$90,000 on an event weekend such as rodeo. So the potential upside is huge
should I pursue the more mature segment of the late night crowd.Current deal structure involves $100,000 price, $30,000 down, cash
purchase of inventory at roughly $10,000, and a 3 year contract for the
balance. After other cash costs I should be left with $10,000- $13,000 in the
bank for security.Now for the fun part. The bistro is set up as a sole proprietorship owned not
by the owners but by an s-corp they set up 12 years ago for a few of their
other ventures which they have since sold. This s-corp has an immaculate
credit rating with dun and bradstreet and long established amex/visa/mc/etc
accounts worth about $300,000, all of which are at a $0 balance. I have asked
the owners to work at removing any personal gaurantees on those accounts
and increasing the credit lines.My thought is that if I buy the s-corp rather than just the bistro I will have an
automatic ability to invest using the corporations credit accounts. I could
begin by allowing the sellers to transfer some of their personal debt to the
cards and I would just assume that debt through the purchase rather than
commit to such a short term note for the balance of the purchase price.I could go off into how I plan to use the plastic to buy discounted paper to
trade at face value, with an aim of being free and clear within a year but that
is another story.Any thoughts on my scenario or things I may be overlooking would be
appreciated.Thank you in advance, and have a profitable day.