10 THINGS TO FAST TRACK FROM PURCHASE OFFER TO CLOSING. PLUS BONUS MATERIAL: ACQUISITION CHECKLIST
LOOKING TO BUY OR SELL A BAR?
The prospect of buying or selling a bar can be a daunting one. Either you are getting out of a business that you spent dedicated time and energy building, or you are walking into a business and are on the verge of dedicating immense time and energy. Whichever side of the deal you are on, it is important to know what your responsibilities are and what your concerns should be during the transaction. This report, What You Should Know About Selling a Bar, is a succinct guide that will walk you through aspects of the transaction that matter most as the seller.
BAR, WINERY & LIQUOR LAW
At Tracy Jong Law Firm, we help entrepreneurs in the New York hospitality industry (bars, franchises, wineries, bars, nightclubs, bed and breakfasts, country clubs, microbreweries, microdistilleries, liquor stores, catering establishments, and alcohol retail markets). Our clients need an attorney familiar with the regulatory environment and business practices in their industry. We help you review a potential transaction, identify potential pitfalls and mitigate your risks. We help you draft, review and negotiate agreements and obtain permits and licenses necessary to operate your business. We educate you on how to comply with the law and avoid violations, and help you respond if you receive a violation notice. When you are ready to expand or sell, we help you navigate the process to maximize the return on your investment. Our experience in this area is very broad, so we can swiftly address any of our clients’ needs.
Whether you are a start-up establishment, entrepreneur with a dream or a successful business dealing with a business issue or planning for growth, you should consider talking with our experienced legal team. We can help you to keep your business running smoothly, and guide you as you plan for growth.
WE WORK TOGETHER FOR YOUR SUCCESS
Tracy Jong Law Firm has built a solid reputation of competence and integrity in representing entrepreneurs in both start-ups and established small- to mid-sized businesses in realizing their creative potential. In addition to a focus on bar, winery and liquor law, our team has experience in immigration, patent, trademark and copyright protection that have unique applications for these industries. Our attorneys assist clients in expert areas important to New York small business owners. We help clients achieve success throughout the life of their business, from its formation to its operation and even to its eventual sale or dissolution.
Whatever your needs, we work closely with you, focused on your objectives in each situation, keeping you informed of our activities and inviting your participation throughout the process. Our goal is to offer outstanding value through speed and customer service. Our firm turns most projects around in 5 to 10 business days. When expedited processing is necessary, our teams are flexible and can accommodate even same day service in certain cases. While we work quickly to meet your needs, we still take the time to do a thorough and comprehensive job—offering speedy service without compromising quality.
10 THINGS TO FAST TRACK FROM PURCHASE OFFER TO CLOSING
When selling your business, you probably want to get the most bang for your buck in the quickest amount of time. To do this, you have to be able to determine the value of everything that goes into your business. To speed up the process, you will need to gather all relevant information and documentation that will go into determining the purchase price, assisting in due diligence for the buyer, and preparing for closing. So, what steps do you need to take to make this happen?
1. Prepare a complete inventory of assets with values.
When evaluating the value of a business for purchase, the buyer (and his financial and legal team) will want to know what he is actually buying. The assets of a bar generally fall into four categories:
- Equipment: the tables, chairs, freezers, food prep and kitchen equipment, and the like.
- Intellectual property: trademarks (registered or unregistered), copyright (registered or unregistered), and trade secrets. Bar owners often forget about these valuable assets. Signature recipes are often trade secrets and the website content is protected by copyright. The bar’s trade name may be embodied in a logo or well-known or highly distinctive brand name in the local market.
- Inventory: materials. This generally includes the raw materials used to create products for retail sale. This will include not only our perishable stock, but also your paper products and storage containers, your office and cleaning supplies. The value will be based on actual purchase price of each item. Having receipts or computerized inventory systems adds value.
- Intangibles: these generally include that extra value known as ‘good will’ (the reputation and loyal customer following) and non-compete agreements for the principals.
The best way to prepare the inventory is by using an Excel spreadsheet. It can be easily changed and adjusted, and nearly everyone has the capability to read Excel files. It also easily lends itself to import into other programs to prepare documents needed during the transaction.
2. Have a copy of your sales tax number and three years of sales tax returns (quarterly and annual).
Have a copy of your business’s EIN and New York State sales tax number readily available. Most transactions require a bulk sales notice to be filed no less than 10 days prior to closing and this information is necessary to complete the proper forms. Also have three years’ worth of quarterly and annual sales tax returns available. Sales tax is a lien on business assets, so you will need to show that there are no sales tax liens or outstanding amounts owed to the New York State Department of Tax and Finance. Your sales tax returns will also help verify the volume of sales for the business. Questions will arise if you claim to have sales of $10,000 monthly but your sales tax returns only show sales of $5,000 per month.
3. Perform a UCC, judgment and tax search.
The buyer and the bank will be assessing whether there is clean title to the assets being transferred. Having readily available searches by a recognized corporate search service can save weeks in the closing process. The buyer will probably want to update the searches himself, but having preliminary searches on hand will show the confidence you have and seriousness to proceed expeditiously. It shows your business is in order and ready to transfer. Ask your attorney to order UCC, judgment, franchise tax, and bankruptcy searches for the business and its principals. Any doubts or concerns about whether to make an offer can be dispelled, increasing the confidence of the potential buyer and the amount of the offer. These searches are typically $100-$200 and are a small investment in comparison to the value of the business you are selling.
4. Update your corporate books and records.
If the business assets are owned by an entity such as a corporation or a limited liability company, the business entity will need to have up-to-date corporate record books. All of the annual meeting minutes must be there to establish the current officers and directors with the authority to bind the business in these transactional agreements. In the case of a stock transfer, a roster of all outstanding stock and shareholders will be needed. There also will be a need for minutes and resolutions authorizing this transaction, since it is a sale of substantially all of the business’s assets, which is a corporate act that generally requires certain approvals by the equity owners (shareholders and members). Regulatory authorities such as the State Liquor Authority regularly ask for copies of these records.
If this is something you let go over the years, now is the time to start updating your records. Work with your attorney or use an off-the-self software application that creates corporate minutes and resolutions.
5. Have your liquor license records readily available.
The State Liquor Authority now requests an applicant to attest to what is currently on file at the State Liquor Authority. For those taking over a premises, they will want to have the historical records of the current licensee. In any event, much of the information will be a “head start” for completing any required SLA forms. If they are not available, a Freedom of Information search can be done (this may take several weeks) to obtain copies of portions of the record. Of most importance are the following:
- any prior disciplinary proceedings or investigations
- method of operation
- diagram of licensed premises
- any hearings or special agreements with the municipality or the SLA related to operating
- current license information
If there is alcohol stock involved, this is heavily regulated by the State Liquor Authority. You will need a precise list of any alcohol stock transferring ownership to be filed in conjunction with a liquidator’s permit with the SLA. There is a conundrum in the fact that alcohol stock is dynamic for an operating entity (it changes daily, if not hourly). The liquidator’s permit must accompany the alcohol license application (and temporary permit application, if the buyer desires it). You will need to submit a letter with the application packet and fee stating that the final inventory will be supplied after closing. A final inventory will most often be a condition for the buyer to obtain his temporary or permanent license to sell beer, wine or liquor.
6. Compile any equipment inspections and building code or health code inspections and violation records.
Another thing the buyer will be concerned about is whether the equipment is operational and whether there are any outstanding or potential building or heath code violations. Being able to address these concerns will probably net higher offers from buyers. The natural tendency is to “hedge your bet” when making an offer. Buyers will “build in” unknown costs for inspections and repairs. If you want to get a higher offer, remove the need to lower the offer by assuring it is worth the asking price. A small investment in some equipment inspections, or simply have good records on these issues, will add value. For example, get a boiler, HVAC, termite/rodent or sprinkler system check to assure the buyer that everything is in good working order. Get a report from the health and building department showing there are no violations. (If there are, immediately correct them.) Again, this shows confidence and saves weeks in the closing process. An investment of a few hundred dollars will net you a great ROI with higher purchase prices and faster closings.
7. Get payoff statements for all financing/liens.
Many bars have leases or installment payment agreements and financing agreements for some of the equipment. These often include point of sale systems, computers and credit card machines, as well as large kitchen equipment. They may also include monthly contracts for HVAC maintenance, grease trap cleaning, Yellow Pages or internet contracts. Have a list of all liens and a payoff statement to show the debt outstanding at the time of the purchase offer. Even better, have copies of all lease and finance agreements and contact information for the lessor/lender to facilitate the assumption of the obligation by the buyer. Instead of weeks, you can help the buyer accomplish the transfers in an afternoon.
8. List all security deposits.
Prepare a list of any security deposits that may be transferred (leases, utilities, vendors). You will want to be credited at closing for any security deposits you paid on behalf of the business, since the future refund will go to the new owner. Last-minute issues like this tend to cause suspicion, even though they are legitimate and proper. Avoiding surprises enhances trust and confidence for the buyer.
9. Make copies of any leases.
Prepare copies of any leases for the space and contact information for the landlord or management company. This allows the buyer to negotiate a lease assignment, security deposit transfer and termination of any personal guaranties by the seller’s principals. It may also be necessary in the financing and liquor license process. Having it readily available expedites all of the processes for the buyer, facilitating closing in a shorter timeframe.
10. Create a transition plan.
You will need to teach the buyer
various things to be successful. For example, you may need to help transition
employees. This is especially important if there is seller financing, where a
decline in the business risks your being repaid. You may also be sad to watch
your business go downhill after all of your effort. A few words of advice or a
few days working together may make all the difference.
ACQUSITION CHECKLIST: DON’T FORGET THE DETAILS
Leases, Contracts, and/or Vendor Agreements
- Do the leases/contracts/vendor agreements need permission to be transferred?
- Is there a cost to terminate them?
- How will any security deposits be handled? (Transferred, closed, or paid for?)
- When does the property lease expire?
- Is permission needed to transfer the lease?
- How do you transfer your vendor systems? (Point-of-sale cash register system, credit card sale system, office practice management software, etc.)
- Can government permits & licenses be transferred?
- Are there any supplier accounts to transfer? Insurance accounts?
- What regulatory permits and licenses are there for the business?
- What contracts/leases/agreements do you have for advertising? (Internet/websites, telephone book, etc.)
- What utilities will need to be changed over? (Gas & electric, telephone, water, sewer, trash, etc.)
- Is there infrastructure to consider? (Security system, HVAC, carpets/mats, website domain names & social media)
Inventory & Products For Sale
- Create a complete inventory
- Determine if there will be an actual or an agreed-upon value (if actual, determine the wholesale and retail value of the stock)
- Collect receipts for all stock in house
- Identify and non-usable stock and determine how to handle it
Equipment (Built-in & Portable)
- Air conditioning
- Cash register
- Security system/cameras
- Computer hardware and software
- Fixtures, counters, shelves, and racks
- Appliances (refrigerators, freezers, stoves, etc.)
- Music systems
- Books and records, corporate books, taxes, payroll, insurances
- Office furniture & supplies
- Warranties & manuals, maintenance or service contracts
- Maintenance equipment & parts
- Gaming machines
- Computers & peripherals
Determine Required Condition of Facility At Time of Turnover
- Who is responsible to clean up debris?
- Who is responsible to dispose of unwanted inventory?
- How will final inspection & inventory be handled?
- NYS Bulk Sales Tax Unit
- State Liquor Authority
- Secured creditors
If you are looking for representation in the sale or purchase of a business, please contact our office today! Call (585) 247-9170, or send us an email us at [email protected].