Loan to buy a pub

I am currently in a steady sales job earning 35K with ususal benefits...however I have helped out a family friend over the years in their pub & lounge. Thing is he's coming to retirement age and has offfered me first refusal on the place. Basically it includes: 4 bed house adjoining the main building, a full commercial kitchen, bout half an acre (car park, garden, etc) of land, lounge which can cater for 300 people and obviously the bar area. It was fully refurbished about 8 years ago and is in excellent condition with a good client base (80% of all local funerals, christenings, 21st's etc are held there as well as GAA functions etc). The figures are: annual turnover of average €240K pa @ roughly 10% profit after allowing for all business costs as well as personal drawings, loans etc. There is potential to expand with bar food, Sunday lunches etc that the current owner just doesn't have the will to do.

My own situation is as follows:
Assets: 1 acre site with FPP valued @ €100K. (No outstanding debts on this - unfortunately selling this is not an option due to family constraints - it's a long story!!) Approx €12K in cash savings. Inheritance of a house in next 4-5 years worth approx €190K.
Loans: Car loan with 4K left to be paid off in Mar 09.

If I was to make an offer it would have to be in the region of € 1.2m. Some advice on whether or not this is even possible or some comments on the madness or otherwise of doing it would be welcome!!!

wcolfer

Even if you could borrow the money the repayments will be in the region of € 50K to € 70K pa. I think the profits would need to be much better for me to consider this to be anything but slightly mad

Your likely take will be 24K and you're currently earning 36K? What's the appeal? Why would you want it?

wcolfer said:

Inheritance of a house in next 4-5 years worth approx €190K.

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As an aside, how do you someone's going to die in 4-5 years precisely? Do you have something planned?

My parents have agreed to sign it over after my 30th birthday - maybe I shold start adding salt to their meals!!!

Just to clarify the 10% profit - this is after the current owner has paid his mortgage on the place, paid his car loans, given himslef a wage and paid staff, insurance, stock etc. So its 10% clear profit.

wcolfer said:

Just to clarify the 10% profit - this is after the current owner has paid his mortgage on the place, paid his car loans, given himslef a wage and paid staff, insurance, stock etc. So its 10% clear profit.

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I would take this with a severe pinch of salt, unless the remaining mortgage & car loans are small and he is living like a monk. Pubs are not THAT profitable - especially with a turnover of only €5,000 per week. The pub industry in general is in serious trouble in this country.

Sorry, it might not be what you want to hear but you will not get finance to do this even if you believe it is a viable business going forward.

As an alternative, would you consider leasing the place from him for a couple of years to explore the possibilities of expanding the business and then see whether its a viable proposition?

As it stands it sounds like its a non-runner.

I think you need to find out first how profitable the pub is. You say 10% of turnover is profit but after "drawings" To get the real profit figure you need to add back the drawings to make sense of it.
The other point is that the proposed purchase price of the property includes a house ? This can distort any return on capital calculations for the business.

i think you will be making a huge mistake,the pub trade is dead there is very little money to be made and i think it is only going to get worse with the down turn in certain areas of the economy.you sound like you have a good job stay with it as you will only regret it you will probably work 18 hrs a day with your own buisness ,no holiday pay or other perks you should really think about it

Correct me if I'm wrong here, but, you would be paying 1.2m for an asset producing 24k in profit after drawing a wage.

That's a 2% return!!!!

I was looking at some commercial property to buy and it seems valuations are ridiculous for some businesses.

From the limited info available and taking the OP's assertions as true, price around the 6-700k seems reasonable.

Is seller taking a little advantage of you being 'close' to him?

Ask an accountant to give a run through the books and make a valuation of the business based on future revenue/ profit streams rather than the perceived value of the 'property' to which we Irish get a little too attached to.

Or throw up some more info, and I'm sure more people here can give further advice.

I would think very seriously about this before making any offer. Another poster suggested a lease which might be a better option.

I live in a rural area and the pub trade during the week is practically non-existent especially mid-week. Only business seems to be done at the weekends - Friday and Saturday nights. The main reasons are the smoking ban and of course the fear of being caught and bagged on the way to work the next day as people living in the country need to use their cars as their is little or no public transport. So very few people are going out at all now during the week.