There's more than one way to score a location

One of the biggest challenges potential brewery owners face is finding a location. I’ve had some students take as long as five years before the right location shows up. As I’m sure you are aware - because mostly we are talking about brewpubs, not large packaging breweries - I mainly push acquiring an existing restaurant to start off with. This one thing saves so much money and time, it’s almost like getting a free pass. You really can’t go wrong.

But still, it’s difficult to find one for lease, or it is even hard to find any simple place you can turn into a pub. Well there is an alternative approach: Buy a restaurant.

When I was 25 I made a brief attempt to escape the restaurant business and earned a real estate license. I was offered a job as a business broker, and being unaware of the difference, I took it. Basically, my job was to cold call businesses to see if they would sell. Naturally since I had been a manager of restaurants, I focused on food establishments. This turned out to be really great experience. Firstly, I became comfortable (somewhat) with just coming right out and asking an owner of a restaurant if they had any interest in selling. Secondly, to value their business I got to read a bunch of profit and loss statements (P&L’s).

Here’s what I found out: Almost everyone is interested in selling. Oh sure, they may say no when you ask them, but then they go home and tell their spouse, friend, partner, “Guess what happened today? Someone asked if I would sell my restaurant.” Once the seed is planted the potential seller starts to think about life without having to deal with employees, purveyors, the landlord, etc.

Let’s say I was looking for a location for a small brewpub in my town. I would look at existing restaurants that look a little worn down but in a good location and had a decent layout I could re-work. I might find two or three candidates and then go into each one and ask for the owner. I would tell them that I really liked their restaurant and “I know this may sound crazy, but have you ever thought about selling? I’ve been looking to buy a restaurant just like this one.”

Tell them if they say no, which they probably will, that you may call them in a week or so, just in case they change their mind. They most likely will.

When they are ready to talk about it some more, price will come up. It doesn’t matter what they say, you want to see their profit and loss statements (to justify the price they are selling) for the last three years. Given Covid-19, I would ask for 2018, 2019, 2021 just to be fair.

Here is how I value a business.

• Take the bottom line net profit for the year

• Add depreciation, amortization, interest expense, and any odd expenses that may have to do with the owner like life insurance, their cell phones, etc.

• Do the same thing with the other two years, add them all together and divide by three to come up with an average net profit.

• Take this figure and give it a multiple. If the business is static, multiply by two or three. If the business is showing growth, then multiply by five. If the business seems to be failing, you don’t use this system. Instead, come up with a value based on assets and leasehold improvements plus furniture, fixtures and equipment, and negotiate from there.

Here’s the thing. If you went into a blank retail space and tried to turn it into a restaurant or brewpub, you would probably spend $150 to $200 per square foot to get the space ready before you have even bought any equipment. So if an owner is asking $150,000, this is paying for the restrooms, the hood and fire suppression system and all the floor drains and grease trap. Plus it will have lots of equipment that you could probably use.

On top of that, it is already a restaurant, so it is most likely zoned for your brewpub as well. And since you are not changing the business (like a clothing store to a brewpub) it won’t trigger a change of use, which means bringing everything up to code. Usually, not always. This alone will save you a lot of time in the licensing process. And, if you are not moving anything structural, you possibly won’t even need an architect or engineer involved.

You get all this for $150,000, but wait there’s more! Typically in a business buy out, the person selling the business carries the note. You as the buyer just need to put as a down payment 20%, which in this case is $30,000. So no bank is involved. Sweet.

I’m not blowing smoke. I’ve done this more than once and it really works. Sites like BizBuySell have all sorts of listing, including breweries!

Be brave. If you think about it, offering to buy someones business is one of the greatest compliments you can give them. They WILL NOT be offended.

Don’t give up your brewery dream because you can’t find the brewery dream location. The best place could be right under your nose.

Tom Hennessy - Sophisticated Brewery Expert