10 THINGS TO FAST TRACK FROM PURCHASE OFFER TO CLOSING. PLUS BONUS MATERIAL: ACQUISITION CHECKLIST

LOOKINGTO BUY OR SELL A BAR?

The prospectof buying or selling a bar can be a daunting one. Either you are getting out ofa business that you spent dedicated time and energy building, or you arewalking into a business and are on the verge of dedicating immense time andenergy. Whichever side of the deal you are on, it is important to know whatyour responsibilities are and what your concerns should be during thetransaction. This report, What You ShouldKnow About Selling a Bar, is a succinct guide that will walk you throughaspects of the transaction that matter most as the seller.

BAR, WINERY & LIQUOR LAW

At Tracy Jong Law Firm, we helpentrepreneurs 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). Ourclients need an attorney familiar with the regulatory environment and businesspractices in their industry. We help you review a potential transaction,identify potential pitfalls and mitigate your risks. We help you draft, reviewand negotiate agreements and obtain permits and licenses necessary to operateyour business. We educate you on how to comply with the law and avoidviolations, and help you respond if you receive a violation notice. When youare ready to expand or sell, we help you navigate the process to maximize thereturn on your investment. Our experience in this area is very broad, so we canswiftly address any of our clients’ needs.

Whether you are a start-up establishment, entrepreneur with a dream or asuccessful business dealing with a business issue or planning for growth, youshould consider talking with our experienced legal team. We can help you tokeep your business running smoothly, and guide you as you plan for growth.

WEWORK TOGETHER FOR YOUR SUCCESS

Tracy Jong LawFirm has built a solid reputation of competence and integrity in representing entrepreneursin both start-ups and established small- to mid-sized businesses in realizingtheir creative potential. In addition to a focus on bar, winery and liquor law,our team has experience in immigration, patent, trademark and copyrightprotection that have unique applications for these industries. Our attorneysassist clients in expert areas important to New York small business owners. Wehelp clients achieve success throughout the life of their business, from itsformation to its operation and even to its eventual sale or dissolution.

Whatever your needs, we work closely with you, focused on your objectives ineach situation, keeping you informed of our activities and inviting yourparticipation throughout the process. Our goal is to offer outstanding valuethrough speed and customer service. Our firm turns most projects around in 5 to10 business days. When expedited processing is necessary, our teams areflexible and can accommodate even same day service in certain cases. While wework quickly to meet your needs, we still take the time to do a thorough andcomprehensive job—offering speedy service without compromising quality.

10 THINGS TO FASTTRACK FROM PURCHASE OFFER TO CLOSING

When selling your business, youprobably want to get the most bang for your buck in the quickest amount oftime. To do this, you have to be able to determine the value of everything thatgoes into your business. To speed up the process, you will need to gather allrelevant information and documentation that will go into determining thepurchase price, assisting in due diligence for the buyer, and preparing forclosing. 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 abusiness for purchase, the buyer (and his financial and legal team) will wantto know what he is actually buying. The assets of a bar generally fall intofour categories:

1. Equipment:the tables, chairs, freezers, food prep and kitchen equipment, and the like.
2. Intellectualproperty: trademarks (registered or unregistered), copyright (registered orunregistered), and trade secrets. Bar owners often forget about these valuableassets. Signature recipes are often trade secrets and the website content isprotected by copyright. The bar’s trade name may be embodied in a logo orwell-known or highly distinctive brand name in the local market.
3. Inventory:materials. This generally includes the raw materials used to create productsfor retail sale. This will include not only our perishable stock, but also yourpaper products and storage containers, your office and cleaning supplies. Thevalue will be based on actual purchase price of each item. Having receipts or computerizedinventory systems adds value.
4. Intangibles:these generally include that extra value known as ‘good will’ (the reputationand loyal customer following) and non-compete agreements for the principals.

The best way to prepare theinventory is by using an Excel spreadsheet. It can be easily changed andadjusted, and nearly everyone has the capability to read Excel files. It alsoeasily lends itself to import into other programs to prepare documents neededduring the transaction.

2. Have a copy of your sales tax number and three years of sales taxreturns (quarterly and annual).

Have a copy of your business’sEIN and New York State sales tax number readily available. Most transactionsrequire a bulk sales notice to be filed no less than 10 days prior to closingand this information is necessary to complete the proper forms. Also have threeyears’ worth of quarterly and annual sales tax returns available. Sales tax isa lien on business assets, so you will need to show that there are no sales taxliens or outstanding amounts owed to the New York State Department of Tax andFinance. Your sales tax returns will also help verify the volume of sales forthe business. Questions will arise if you claim to have sales of $10,000monthly 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 beassessing whether there is clean title to the assets being transferred. Havingreadily available searches by a recognized corporate search service can saveweeks in the closing process. The buyer will probably want to update thesearches himself, but having preliminary searches on hand will show theconfidence you have and seriousness to proceed expeditiously. It shows yourbusiness is in order and ready to transfer. Ask your attorney to order UCC,judgment, franchise tax, and bankruptcy searches for the business and itsprincipals. 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 comparisonto the value of the business you are selling.

4. Update your corporate books and records.

If the business assets are ownedby an entity such as a corporation or a limited liability company, the businessentity will need to have up-to-date corporate record books. All of the annualmeeting minutes must be there to establish the current officers and directorswith the authority to bind the business in these transactional agreements. Inthe case of a stock transfer, a roster of all outstanding stock andshareholders will be needed. There also will be a need for minutes and resolutionsauthorizing this transaction, since it is a sale of substantially all of thebusiness’s assets, which is a corporate act that generally requires certainapprovals by the equity owners (shareholders and members). Regulatoryauthorities such as the State Liquor Authority regularly ask for copies ofthese records.

If this is something you let goover the years, now is the time to start updating your records. Work with yourattorney or use an off-the-self software application that creates corporateminutes and resolutions.

5. Have your liquor license records readily available.

The State Liquor Authority nowrequests an applicant to attest to what is currently on file at the StateLiquor Authority. For those taking over a premises, they will want to have thehistorical records of the current licensee. In any event, much of the informationwill be a “head start” for completing any required SLA forms. If they are notavailable, a Freedom of Information search can be done (this may take severalweeks) to obtain copies of portions of the record. Of most importance are thefollowing:

1. anyprior disciplinary proceedings or investigations
2. methodof operation
3. diagramof licensed premises
4. anyhearings or special agreements with the municipality or the SLA related tooperating
5. currentlicense information

If there is alcohol stockinvolved, this is heavily regulated by the State Liquor Authority. You willneed a precise list of any alcohol stock transferring ownership to be filed inconjunction with a liquidator’s permit with the SLA. There is a conundrum inthe fact that alcohol stock is dynamic for an operating entity (it changesdaily, if not hourly). The liquidator’s permit must accompany the alcohollicense application (and temporary permit application, if the buyer desiresit). You will need to submit a letter with the application packet and fee statingthat the final inventory will be supplied after closing. A final inventory willmost often be a condition for the buyer to obtain his temporary or permanentlicense 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 beconcerned about is whether the equipment is operational and whether there areany outstanding or potential building or heath code violations. Being able toaddress these concerns will probably net higher offers from buyers. The naturaltendency 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. Asmall investment in some equipment inspections, or simply have good records onthese issues, will add value. For example, get a boiler, HVAC, termite/rodentor sprinkler system check to assure the buyer that everything is in goodworking order. Get a report from the health and building department showingthere are no violations. (If there are, immediately correct them.) Again, thisshows confidence and saves weeks in the closing process. An investment of a fewhundred dollars will net you a great ROI with higher purchase prices and fasterclosings.

7. Get payoff statements for all financing/liens.

Many bars have leases orinstallment payment agreements and financing agreements for some of theequipment. These often include point of sale systems, computers and credit cardmachines, as well as large kitchen equipment. They may also include monthlycontracts for HVAC maintenance, grease trap cleaning, Yellow Pages or internetcontracts. Have a list of all liens and a payoff statement to show the debtoutstanding at the time of the purchase offer. Even better, have copies of alllease and finance agreements and contact information for the lessor/lender tofacilitate the assumption of the obligation by the buyer. Instead of weeks, youcan help the buyer accomplish the transfers in an afternoon.

8. List all security deposits.

Prepare a list of any securitydeposits that may be transferred (leases, utilities, vendors). You will want tobe credited at closing for any security deposits you paid on behalf of thebusiness, since the future refund will go to the new owner. Last-minute issueslike 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 forthe space and contact information for the landlord or management company. Thisallows the buyer to negotiate a lease assignment, security deposit transfer andtermination of any personal guaranties by the seller’s principals. It may alsobe necessary in the financing and liquor license process. Having it readilyavailable expedites all of the processes for the buyer, facilitating closing ina shorter timeframe.

10. Create a transition plan.

You will need to teach the buyervarious things to be successful. For example, you may need to help transitionemployees. This is especially important if there is seller financing, where adecline in the business risks your being repaid. You may also be sad to watchyour business go downhill after all of your effort. A few words of advice or afew days working together may make all the difference.

ACQUSITIONCHECKLIST: DON’T FORGET THE DETAILS

Leases, Contracts, and/or Vendor Agreements

• Do the leases/contracts/vendor agreements needpermission 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 practicemanagement software, etc.)
• Can government permits & licenses betransferred?
• Are there any supplier accounts to transfer?Insurance accounts?
• What regulatory permits and licenses are therefor the business?
• What contracts/leases/agreements do you havefor 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? (Securitysystem, HVAC, carpets/mats, website domain names & social media)

Inventory& Products For Sale

• Create a complete inventory
• Determine if there will be an actual or anagreed-upon value (if actual, determine the wholesale and retail value of thestock)
• Collect receipts for all stock in house
• Identify and non-usable stock and determinehow to handle it

EquipmentBuilt-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 orservice contracts
• Maintenance equipment & parts
• Vehicles
• Gaming machines
• Computers & peripherals

DetermineRequired Condition of Facility At Time of Turnover

• Cleanliness
• Who is responsible to clean up debris?
• Who is responsible to dispose of unwantedinventory?
• How will final inspection & inventory behandled?

Notices

• Municipality
• NYS Bulk Sales Tax Unit
• State Liquor Authority
• Secured creditors
• Others?

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 bburton@tracyjonglawfirm.com.