Some day, one way or another, someone else is going to be operating your club. How and when you reach that point is largely up to you. Realtor Winston Hines offers some tips on what club owners should do now in preparation for potential retirement.
You’ve worked seven nights and days a week for years on end, inhaled enough estrogen and hormones to get pregnant yourself, personally dealt with crazy patrons and involuntary partners (sticky-fingered employees), paid out stacks of your hard-earned money to high-priced attorneys to keep you in business and/or in compliance with whatever government entity decided to mess with you just last week …and now you’re reading an article about giving all that up? Getting out and having a life? Counting all that moolah your club is worth? Well, hang in there first.
Here’s one strategy: You can just keep working like crazy, just keep going, and eventually a few people will show up for your memorial service, have a drink in your honor, and go on with their live. That’s not really the best exit strategy, but it does offer the easiest path. Unfortunately, a surprisingly large percentage of club owners wind up involuntarily exiting their club ownership this way.
Here’s another strategy: Pass the club to your kids.There is a whole world of considerations related to generational transitions. In this overview article, we’re just going to hit the main topics related to selling your club to an arms-length buyer.
In truth, the negotiation for the sale of your club starts before a buyer even knows your club is for sale. It starts with you making that decision to sell, to give up this operation that has involved so much of your life, your soul, your health, your self-worth.
First determine if you have to sell the club because of some external factor (i.e. health, a lawsuit, divorce). If it is some cause that is pushing you to divest of the club in a forced, somewhat uncontrolled manner, you need to buy yourself as much time as possible.
If you are not under pressure to sell in the very near future, this is where you need to start making decisions that affect that sale of your club anywhere from one to three years in the future.
Did I really say a one-to-three year period? And here you were thinking you’d be on some beach somewhere sucking down a fruity drink in a few months.
Thinking of selling? Do these things FIRST!
Step one: Have a long, careful conversation with your accountant. Just for your information, be aware that you and your attorney have a level of confidentiality that you do not have with your accountant. If for some reason, or oversight, you realize that you might not have reported all of your earnings from your club in the past, from here on out you really should focus on what/how you report to them all of your club’s income, and all of your reasonable, normal and appropriate expenses for that club.
That one-to-three year period becomes critical in rationalizing and organizing your income and expenses for the club in such a way so that when Mr. Buyer comes along, he doesn’t take one gander at the books and then starts backing away. If there are glaringly obvious indicators of incorrect reporting, your stance, your asking price, your negotiation stance has just taken a big hit right off the bat. In addition, you want a track record that shows you have a solid design for showing your income and expense report to Mr. Buyer during due diligence.
Step Two: Have another conversation, this time with your attorney. You need to look at your attorney as your confidant, your father confessor, your legal consigliere, when you decide to sell that club. He has got to be knowledgeable about your licenses, your zoning and any legal action, pending or past. How does your entertainer contract look? Is it as up to date as possible?
[This is where I could get into great detail about the dancer classification issue and pending legal risks to a class-action suit; instead, speak to your attorney about this subject at length, and seriously consider attending this year’s EXPO legal panel about what it would mean to classify your club’s entertainers as employees.]
Listen to your accountant and your lawyer first. If your accountant or attorney are not “on your side” and proactively looking to protect you and your operation, start looking around—you’ve invested your time and life in that club.
If one or the other says you need to change the financial status of your business in anticipation of selling, you really need to look hard at this. How you are operating your club: As a sole proprietorship? A limited liability entity? An S or even C Corp? It can and will have a serious impact on how a buy/sell agreement is designed, how much tax you pay and how much money you get to keep.
All clubs are physically structured operations: You either own the building you’re in, or you lease it. If you own the building, do your accountant and attorney have you set up in the most advantageous ownership status of that building? Are you leasing to yourself? If you do own the building, you have a great deal of flexibility in how a purchase could be structured — and that might translate in you retaining more of your sale price after taxes.
Do you lease your building? Single, double, or triple net? How much time is left on that lease just might determine whether you have anything at all to sell to Mr. Buyer? If your landlord plans to turn your pretty little club into a parking lot after the lease is up, and you only have three years left on your lease, you very well may be SOL—a technical term your attorney can explain in detail. Is your lease transferable without interference from the landlord? Do you have a “walk-out” clause? Is “key money” a factor? What is “key money?” Just how “friendly” is your landlord to your business?
If you are in a lease hold, and you want to get a good sale price for your club, you really need to have a minimum of 10 years left on a lease. The more preferable would be in the 20-year range, and that can be divided up into option to renew periods of three to five years. Having an attractive existing lease ready to present to Mr. Buyer strengthens your position as seller.
Summation: When you do decide to sell, start talking right then to your accountant and your lawyer! All these considerations can take months, even years, to get set up properly to get positioned to sell in the best possible shape. No matter how small or big your operation is, you will benefit by a) putting them on notice, b) getting them up to speed on your plans, c) getting them on board with you when you are faced with a buyer and maybe his offer to purchase. The more prep time they have to get you and your club set up as best they can, the stronger your position will be when dealing with a buyer.
Winston Hines, Broker in Charge of HWH Properties, is a licensed commercial Realtor and Business Broker, specializing in the purchase and sale of adult nightclubs throughout the U.S. for over 15 years. He is a member of the International Business Brokers Association (IBBA) and American Business Brokers Association (ABBA). He also holds a Certified Business Intermediary (CBI) designation. He can be contacted at either (864) 580-3826 or firstname.lastname@example.org.
EXPO 2017 SEMINAR 1-2 pm, Monday, Aug. 28
Developing your exit strategy — NOW!
|Jim St. John||Eric Langan||Jerry Westlund||Winston Hines|
You can’t take it with you when you go —your adult nightclub, that is. So unless you’re leaving it to your children, at some point you are going to sell your club. The question is, what are you doing now to make your club the most enticing purchase opportunity for a future buyer?
If you’re considering selling your club and moving on into retirement—or even if you’re not ready to sell—there are things you can do to today to increase the overall value of your club. If you do sell, chances are your club will be purchased by an existing adult nightclub owner — most likely, the owner/operator of a club chain. At EXPO 2017, these club owners — Jerry Westlund of the Pony Clubs, Eric Langan of Rick’s Cabaret and Jim St. John of Spearmint Rhino — will explain exactly what they’re looking for when valuing adult nightclubs for possible purchase or shared ownership agreements.
“I’m always looking for an opportunity to buy,” says Westlund. “But what’s an opportunity for me is to give real information to a seller. Our business is a business that doesn’t necessarily transfer well to civilians — people that are not in the adult business. There are very few success stories of someone selling their clubs to a customer or a buddy.”
This advice will also help those owners who are not necessarily looking to sell just yet, but are looking for ways to increase the financial stature of their business and increase its value. This critical area of information will be covered by Realtor Winston Hines, who has specialized in the purchase and sale of adult nightclubs for over 15 years.