A business valuation is more than just guesstimating how much the business will make in revenue that year. There are other considerations that must be taken into account in order to value a business accurately. This is a discussion of several factors that you must examine when doing a business valuation of bars and pubs.
About Business Valuations
When doing a business valuation of bars and pubs, you want to find out the fair market value of the business. The fair market value of a business is defined as the price at which a buyer and seller will willingly make a deal without being under any type of pressure or compulsion.
To do an accurate business valuation of a bar or pub, you have to look at how the bar has done in the past, their potential customer base, the overall potential of the area, and the economic environment.
An accurate business valuation of a bar or pub must include some type of analysis of the bar’s financial statements. The best way to predict a business’ future earning potential is to look at what it has done in the past. Most financial analysts will do a complicated calculation called a “net present value” to determine the true value of a business.
You also must look at the assets of the bar. When valuing the bar business, what items are included in the package? For example, does the bar have a large stock of liquor? Does it have expensive kitchen equipment in the back? If so, this all will need to be taken into account when determining the current value of the business.
Customer Base and Potential of the Area
The potential customer base is another important consideration when valuing a bar or pub business. The number of regular drinking customers that visit the bar will determine the viability of the business.
So if, for instance, there is a new apartment complex being built near the bar, it is highly possible that there will be more customers patronizing the bar soon. This would cause the bar business’ value to go up. Alternatively, if another, better bar is being opened nearby, the bar’s customer base could decrease as people go elsewhere to drink, and the value of the business will go down accordingly.
Finally, the economic environment has an impact on the business valuation of bars and pubs. When the economy is suffering, people tend to drink at home more to save money (Bob Stiles, “Liquor sales up in down economy,” Pittsburgh Tribune-Review). So a bad economic outlook for the next several months or years can negatively effect the present value of a bar or pub business.
To do a thorough business valuation of bars and pubs, you have to get the whole story first. Once you have an idea of the earning potential of the business, the customer growth potential, and how the economy is doing, you can then get a clear view of the true value of a bar or pub business.