Buying a restauarant or nightclub...

Alphathree33

Platinum Member
Dec 1, 2000
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So I happened to run across this website listing businesses for sale.

A typical example is a Night club for sale for $1.5 million running $500K/year in profit.

Why would they sell for such a low price? If that's true, I could take out a loan for $1.5 million today, buy it, pay back the loan in roughly 4 years, and then live the rest of my life off of $500K/year in pure profit.

Shouldn't a business making $500K/year sell for something more like $10 million? (That'd be a 5% rate of return)
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
102,358
8,447
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yeah right. ask to see the books. then ask to see the real books.

night clubs are far too easy to run into the ground.
 

Crusty

Lifer
Sep 30, 2001
12,684
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81
Maybe 500k/yr in revenue.... but I highly doubt that is the actual profit.
 

Alphathree33

Platinum Member
Dec 1, 2000
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The thing is, there are MANY listings of a similar nature all of over the place so it's not just a single case.

Is it simply that there is so much risk associated with it that you could make $500K one year and $0 the next? Still, the risk would have to be extraordinarily high to justify such a low price
 

SearchMaster

Diamond Member
Jun 6, 2002
7,791
114
106
I think the general rule of thumb is roughly 5x profit. So if it's truly making $500K/year profit, the sales price should be ~$2.5M.

The business probably has debts as well, which you would be assuming with your purchase. Night club owners don't tend to be the most ethical people in the world (in my experience) so I'd be very wary that the books were cooked.

5% rate of return would be horrible for a business like that - the risk is MUCH higher than you'd get from the stock market or even more conservative investments. That's why 20% is a more typical standard rate (5x profits).

Oh, and don't forget to factor in the costs of running the club. If the previous owner was the manager, he may have been paying himself a fair amount of money - money you might have to pay someone else to run the club, eating into profits.
 

darkxshade

Lifer
Mar 31, 2001
13,749
6
81
You can't take their word on it, you have to look at their books. It could be that they did make $500k profit one year but maybe other years is less than $100k and decided to give you the best estimate. They didn't say they averaged it.


edit: Also, technically it'll take you 4 years to break even if you can stand to earn nothing but it'll more likely take you like 5 years to break even if you need spending money annually and about 8 years to average $250k/year assuming the club does in fact has a profit of $500k. Anything can happen in 8 years... Plaxico will be released from prison and might show up and shoot someone by accident and you're stuck with the mess. :p
 
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Mike Gayner

Diamond Member
Jan 5, 2007
6,175
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I think the general rule of thumb is roughly 5x profit. So if it's truly making $500K/year profit, the sales price should be ~$2.5M.

The business probably has debts as well, which you would be assuming with your purchase. Night club owners don't tend to be the most ethical people in the world (in my experience) so I'd be very wary that the books were cooked.

5% rate of return would be horrible for a business like that - the risk is MUCH higher than you'd get from the stock market or even more conservative investments. That's why 20% is a more typical standard rate (5x profits).

Oh, and don't forget to factor in the costs of running the club. If the previous owner was the manager, he may have been paying himself a fair amount of money - money you might have to pay someone else to run the club, eating into profits.

Most of this post is based on generalisations and falsehoods which cannot be relied on. Valuations should be done on a case-by-case basis. Like I said, LINKS PLx.
 

DVad3r

Diamond Member
Jan 3, 2005
5,340
3
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I used to work at a night club. They never stay open for long especially under the same name or owners. Not sure how to say this but a night club will only turn a good profit/be popular if the people who own it have connections. Whether those connections are tied to advertising, media, etc, who knows.

Most stay open for 2-3 years till they slow down, then close. Owners will switch hands or just re-open the club with a new name and redecorate it, making it the new "hot spot".

The club I worked at was booming and even had a big radio station from the city there every Friday broadcasting live to air etc, then later on it went down the drain and closed down.

It's like they say, no one cares what you can do or what you have to offer, it's all about who you know.

Most of the night clubs here are owned by organized crime.
 
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Alphathree33

Platinum Member
Dec 1, 2000
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Why do you say you need connections? Presumably if you have a good place with people going to it every night, who cares about your "connections"?

i.e. when I go out, I don't say to myself, "Well I'm not going THERE, they don't have any connections!"
 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
So I happened to run across this website listing businesses for sale.

A typical example is a Night club for sale for $1.5 million running $500K/year in profit.

Why would they sell for such a low price? If that's true, I could take out a loan for $1.5 million today, buy it, pay back the loan in roughly 4 years, and then live the rest of my life off of $500K/year in pure profit.

Shouldn't a business making $500K/year sell for something more like $10 million? (That'd be a 5% rate of return)

Don't do it.

I know from personal experience.

I will be paying off debt from taking a try at one for at least the next 5 years.
 
Sep 7, 2009
12,960
3
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It's a drug front. $500k in profit assuming you're funneling the money through the club. Huge losses if you don't.
 

Koing

Elite Member <br> Super Moderator<br> Health and F
Oct 11, 2000
16,843
2
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You need to pull in big names etc to make money.

It isn't easy to pull $1.5M from a bank...

The hard part is getting people to go to this club on a consistent basis or new people ploughing in. You pay big name DJ's to play and that costs an arm and a leg but it'll get people in and hopefully you make enough &#163;&#163;&#163; on drinks etc to cover it.

It isn't easy to run a club that makes &#163;&#163;&#163;

Koing
 

Malak

Lifer
Dec 4, 2004
14,696
2
0
My friends bought a restaraunt for $30k. No joke. They turned it around and now make plenty of money, the place is always packed from open to close. One of them said they have never lived better. My dad and I are now talking about doing the same thing.
 

JulesMaximus

No Lifer
Jul 3, 2003
74,534
911
126
My friends bought a restaraunt for $30k. No joke. They turned it around and now make plenty of money, the place is always packed from open to close. One of them said they have never lived better. My dad and I are now talking about doing the same thing.

Restaraunts are one of the worst businesses to start. Statistically, nearly 50&#37; of them fail in the first 3 years.
 

SearchMaster

Diamond Member
Jun 6, 2002
7,791
114
106
Most of this post is based on generalisations and falsehoods which cannot be relied on. Valuations should be done on a case-by-case basis. Like I said, LINKS PLx.

Yes, but linking an ad on Craigslist will provide the *EXACT* information required to make a million dollar decision. Of course what I said was a generalization. Not sure what falsehoods I posted, but you're entitled to your opinion.
 

Koing

Elite Member <br> Super Moderator<br> Health and F
Oct 11, 2000
16,843
2
0
The difference is in buying an already established... establishment.

Indeed but WHERE did you get a restaurant (lease I take it?) for $30k? It must have been very run down or going out of business for someone to sell it so cheap I'd imagine?

Yeah you can definitely make money in a takeaway/ restaurant as many people do.

Koing
 

nageov3t

Lifer
Feb 18, 2004
42,808
83
91
even assuming everything in the ad is true and not misleading/cherry-picked data, it could be a situation where the owners overextended themselves by opening up multiple clubs or other venues that did worse, leaving them broke and looking to make fast cash to pay off their debts.
 

Malak

Lifer
Dec 4, 2004
14,696
2
0
Indeed but WHERE did you get a restaurant (lease I take it?) for $30k? It must have been very run down or going out of business for someone to sell it so cheap I'd imagine?

Yeah you can definitely make money in a takeaway/ restaurant as many people do.

Koing

It was just a hole in the wall place, but it had a good location. Just needed a little TLC and it was back in business. This place has a waiting area, lines as long as any Applebees. Great food too.
 

Malak

Lifer
Dec 4, 2004
14,696
2
0
even assuming everything in the ad is true and not misleading/cherry-picked data, it could be a situation where the owners overextended themselves by opening up multiple clubs or other venues that did worse, leaving them broke and looking to make fast cash to pay off their debts.

Or it could just be the case of them wanting to try something new, or relocate. That happens all the time too.