Basic Financial Ramifications of Bar Ownership

Financing is tough for new bar owners. Leasing some equipment is possible. Assuming someone like a bank agrees to give you money, you’ll probably have to personally guarantee to secure the loan.

A personal guarantee is a pledge that you personally (rather than your bar or the corporation that operates your bar) are responsible for the loan, even if the bar defaults on the loan. So, the bank may be loaning the money to the bar, but it expects to get its money from you if the bar goes out of business. (And the bank will want its money).

This isn’t always the case, however. In fact, with competition between vendors today, you may be able to get away without signing any personal guarantees at all. The vendors may give you shorter terms on repayment, but the guarantee should be a bargaining point rather than a given.

Because banks consider a bar to be a risky financial investment, many banks won’t loan you money. Those banks that will loan you money may require you to guarantee the loan. It’s a bargaining point for the percent of interest that you pay the bank.

Banks often need to be “educated” on the true risk of bars and their failure rates. Eating and drinking establishments have been cornerstones of the U.S. economy for decades, and there are as many success stories as there are failures. Show the bank the successes and how you plan to be one, too!

How to accept the worst-case bar scenario

You will be put on COD (cash on delivery) as your first warning. Suppliers will only give you goods if you pay in cash; getting inventory on credit will be a thing of the past.

Always have two or three suppliers as backups. You may only have hit a bad season for the area. If you’re overextended with one supplier, you can keep your doors open by purchasing your goods from one of your backups until you set things right with your primary supplier. This solution isn’t a long-term one, though; straighten out the course as soon as you can.

Here are a few warning signs of hard times to come:

  • Your regular customers are no longer coming in; they’re going to other places.

  • Nights that should be busy (Fridays and Saturdays for most areas) are really slow.

  • Your help is quitting. It can happen like rats fleeing a sinking ship.

  • The neighborhood is changing. If you see businesses boarding up, vandalism and crime are sure to follow.

  • You’re three months behind in your bills, and you’re on COD with everyone.

  • You feel in your gut that it’s time to sell.

It’s a great idea to sell while you’re still open; you get more money when your business is up and running than when your doors are shut. Talk it out with your family and close friends. It’s better to have loved and lost than never to have loved at all. Take a break and try again!

As soon as you see the warning signs, begin taking steps to turn things around. One logical place to start cutting expenses is labor dollars. So, if you send people home early to reduce payroll, you have to start working more to make up for their hours. And remember to watch all your costs from the start.

Be careful of any extra benefits you offer because you may have to take them back if business slows down. Taking benefits away tells your employees that something is wrong, and they will jump ship. (If they don’t jump ship, they’ll be mighty unhappy — and that’s bad for business, too.)

Word travels fast in the bar business, so watch what you say. Don’t let anyone know when things get tough; it will make matters worse. It will be hard to hire new employees and hard to attract new customers. Your bar is a business, and you need to run it like one. Plan wisely from the day you set your plan in motion.

Personal bankruptcy is a very real possibility if your business fails. Make sure you work with your accountant to protect as many of your assets as possible. You may be able to keep your family’s home.

How to look at the upside

If you work hard and plan carefully, your bar will be a superb success, and you’ll have great fun and a good life. You will be financially stable, and everyone will know your name. You’ll be asked for advice and also be invited to a lot of parties. Your popularity will increase 30 times over what it is now.

You’ll have tons of friends (maybe because of the free drinks you buy). Our advice is to make sure you take time off from the beginning, even closing one day a week (we suggest Monday). Take time to be with your family. You’ll have more invitations to events than you can possibly attend. Our advice: Go! Take your better half, your best friend, your mom

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