The Bar Business Podcast: Smart Hospitality & Marketing Secrets For Bar & Pub Owners
Welcome to the Bar Business Podcast, where we help bar owners increase profits, attract loyal guests, and simplify operations without burnout so you can finally enjoy life outside the bar. Our host, Chris Schneider, draws on his over twenty years of experience in the industry to bring you valuable insights and practical advice every week. From creating a winning menu and designing a stylish bar, to effective marketing strategies and HR best practices, we've got you covered. Join us on the journey to bar business success and take the first step towards a brighter future for your establishment.
The Bar Business Podcast: Smart Hospitality & Marketing Secrets For Bar & Pub Owners
Demystifying Bar Worth: Practical Methods for Determining A Bar's Value
Ever wondered how much your bar is really worth? This week on the Bar Business Podcast, we promise to equip you with the essential knowledge to accurately value your bar. Learn to navigate the complexities of bar valuation with our breakdown of gross revenue, seller's discretionary earnings (SDE), and asset valuation methods. Gain insights into the factors that can significantly influence your bar’s value, including equipment condition, location, and lease terms.
We also dissect the intricacies of the common valuation methods, revealing why the true value of a bar is ultimately determined by what a buyer is willing to pay. Discover how to accurately seller's discretionary earnings by properly calculating the amount of money the owner is taking out of the business. We also discuss the valuation of restaurant equipment.
Finally, we demystify the payment options available to U.S. business owners, breaking down the differences in tax filings and payment methods for sole proprietorships, partnerships, and S-corporations. Learn how S-corp owners can benefit from combining payroll and distributions to maximize tax advantages.
Don't miss these invaluable insights that could give your bar business the competitive edge it needs. Tune in and transform your understanding of bar valuation and business operations!
Welcome to the Bar Business Podcast, where we help bar owners increase profits, attract loyal guests, and simplify operations without burnout so you can finally enjoy life outside the bar. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals.
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What is a bar worth Today? We're going to break down different valuation methods and how to get an accurate idea of the value of a bar.
Speaker 2:You're listening to the Bar Business Podcast where every week, your host, chris Schneider, brings you information, strategies and news on the bar industry, giving you the competitive edge you need to start. News on the bar industry giving you the competitive edge you need to start working on your bar rather than in your bar.
Speaker 1:Hello and welcome to this week's edition of the Bar Business Podcast, your ultimate resource for bar owners. I'm your host, chris Snyder, and today we are talking all about bar valuations. So essentially trying to give you ways to answer the question what is a bar worth Now? What a bar is worth is important to people in every part or every stage, I should say, of the ownership journey. So if you're building a concept from scratch, it's important because for your investors, for your bank, what are you building? What is the value of what you are building? If you're looking to buy an existing bar, obviously you want to pay what it's worth and probably not pay more than that. You want to get yourself a good deal. And if you have a bar, what that bar is worth can become very important for your personal financial planning and as you start to think about exiting whether that's to sell or you're looking at passing that along to your heirs in the event of your death whatever that personal financial planning may be, knowing what your bar is worth can be very useful in making sure that you are setting your personal finances up properly. So what is a bar worth Now? Fundamentally? We'll go through some valuation methods here in a minute. Fundamentally, a bar is worth what someone will pay for. So keep that in mind as we talk about valuation methods, as we talk about all these different things, because even if all the math says that your bar is worth $500,000, if the most anyone will pay you is $300,000, it's worth $300,000. And if somebody's willing to pay you $800,000, it's worth $800,000. So don't think that a valuation method or that the math is the end-all, be-all of the situation, because, fundamentally, anything on the planet is only worth what someone will pay you for. Now, that being said, obviously there are industry averages, there are evaluation methods, there are things that we can look at and use those to mathematically determine what a fair value for a business is. And when it comes to evaluating bars and restaurants, this is just as true for restaurants as it is for bars. There are basically three main valuation methods used, and then there are about five factors that will determine where, in the range of value that the method generates, should that bar fall. And I know that probably sounds a little opaque at this point, but we will break this all down in detail as we go through today.
Speaker 1:So, as I mentioned, there are three basic valuation methods. So valuing the bar off of gross revenue, valuing the bar off seller's discretionary earnings and valuing a bar off assets. Now, something I should note here as we're getting started is, at least in the United States, when you buy a bar, there are generally two ways that you can buy that bar. You can buy the assets of the bar, including the liquor license and everything, move that to a separate business and operate, or you can buy the bar itself, including the company that owns it. Now, obviously I am not an attorney, so you need to talk to an attorney about this when you're going to buy a bar, about which way makes the most sense.
Speaker 1:But what I will tell you is, in my experience, the vast majority of the time asset sales work better than corporate sales. Now, when I say asset sale and this is something that can mess a lot of people up An asset sale in this case means we're just moving the assets of one company to another company, but we're including all the goodwill and things in that sale the intangible property, the customers, the employees, all of that. And that's separate from asset valuation, which we'll get into a little bit, which we're literally just looking at. What do you own? That's physical. So when you're selling a bar, there are two ways to do it. And asset sale does not mean asset valuation. Asset sale is just the most common way, in my experience, of transferring bars from one person to another, because it helps you avoid tax issues that prior owners may have had and things like that. But again, if you're going to go buy a bar, definitely, and you're working out that deal, you need to talk to an attorney, because I am not, so you should never take legal advice from me.
Speaker 1:But let's get into valuation methods. So, like I said, there are three main methods here gross revenue, seller's discretionary earnings and asset valuation. The easiest and one of the ones I actually like to rely on the most, because it has the least potential to be incorrect, is the gross revenue method. Now, when we're talking about gross revenue, we're talking top line revenue. What does the POS say came in the door? What does the tax return say that the company made as a whole?
Speaker 1:Now you have to be a little careful with gross revenue because, generally speaking, you want to add back in things like discounts, so your comps and things like that are not counted against you in your gross revenue. Like that are not counted against you in your gross revenue. Gross revenue is that very top line item before all that all the contra income accounts come out and all those discounts and things take place. The other thing with gross revenue to keep in mind is it is very possible that, say, you're doing some private events and you're booking deposits and things in private events through, say, quickbooks and not your POS system. So your POS gross revenue may not be the same as your bookkeeping gross revenue.
Speaker 1:And when we're talking gross revenue method, we want to smash all that together and then just multiply it by a percentage and then just multiply it by a percentage. So we take that total amount of money you brought in the door, or I should say total amount of money you would have brought in the door without discounts, and we're going to multiply that by a percentage. Now, standard percentage on this is going to be 25% to 40%. And so if you had a bar that made a million dollars in gross revenue, you would be looking at a valuation between $250,000 and $400,000. You can go a little bit higher here if you see restaurants that have exceptional revenue. So if we're talking sales above $2 million or if there's something truly exceptional about the business itself. Usually those two things go hand in hand because the guy's making a lot of money or the guy's doing really crazy stuff and have these exceptional, outstanding, outlier type businesses. But it is possible that one or the other is true and so in those cases we're going to push that value up a little bit and maybe go as high as, say, 45% of gross revenue.
Speaker 1:But the big thing here to think about, when it comes to the gross revenue valuation method, it's cut and dry. It is simple. You take the total amount of money, the gross revenue before discounts. You'll multiply it by 0.25. That gives you the lower end, 0.4. That gives you the higher end of that valuation range, and it may be a little bit higher. You can go up to 0.45. If there's something exceptional about the bar, its location, something that makes it a huge outlier compared to everyone else, or if we're seeing those sales in excess of $2 million.
Speaker 1:Now the second way to value a bond is seller's discretionary earnings, and seller's discretionary earnings gets way more complex than gross revenue, part of the reason why I like gross revenue method. Also, to calculate seller's discretionary earnings, we're relying on other people's books when with gross revenue, we can go to the top line of a tax return or the top line of a P&L and say this number times a number gives us our answer Seller's discretionary earnings. Is going to take a lot more math to get to the answer. Now, sometimes you will hear seller's discretionary earnings referred to as seller's discretionary cash flow, seller's cash flow or owner's benefit. And the idea behind seller's discretionary earnings is where, say, with a publicly traded company, we would look at EBITDA or earnings before interest, taxes, appreciation and amortization. Here we're looking at all of that and then adding back to it money that the owner spends on themselves. So that can include things like paying for mileage for the owner's driving, paying for the owner's cell phone, paying for trips to trade shows, anything where the owner is benefiting.
Speaker 1:That is not the standard course of the business and sometimes it can be hard to determine what those items are. And one of the potential pitfalls in using seller's discretionary earnings is that you have to trust. If you're buying a bar, you have to trust the seller and that that is all properly documented and everything in the books is labeled correctly so that you can figure that number out. Obviously, if you're doing this valuation for yourself as an owner of a current bar, you know what's getting used for you and what isn't, and so figuring out your owner's benefit or seller's discretionary earnings becomes a lot easier. But again, to figure out that number, we're starting with EBITDA, which generally you can pull straight off your P&L, assuming that your books are in order, and then you are going to add back into that any expenses that are to the benefit of the owner that are not part of the normal course of business.
Speaker 1:Now, once you've calculated that number, you're going to multiply it by a multiple between one and a half and three times. So let's say the seller's discretionary earnings for a bar was $200,000. 1.5 times 200 would give us 300. 3 times 200 gives us 600. So that value range assuming that bar has a $200,000 seller's discretionary earnings the value of that's going to be between $300,000 and $600,000. Now, just like when we were talking about gross revenue, you can increase that a little bit to about 3.25, maybe even 3.5 for bars that are exceptional or have over $2 million in gross revenue a year, because those will hold a little bit of a higher value.
Speaker 1:And so those are the two methods that we basically use the financial data to calculate what a bar is worth. And those two methods seller's discretionary earnings and gross revenue are best used for operating businesses are best used for operating businesses. The only time you would not use those for an operating business is if the business was losing money or if the business was making so little money. If the seller's discretionary earnings are $500, well, your bar is probably worth more than $1,000 to $1,500. So there is some need sometimes, when the business does not support a good valuation based on discretionary earnings or gross revenue, because either it is closed or it is just really not doing well, that we need to look at assets. So that's our third valuation method is asset valuation and that is simply what is the stuff in the business worth? We're not worried about goodwill at this point. We're not worried about current business, we're not worried about value of brand or anything like that. That will factor into the other methods and just by virtue of the fact that we're taking a number and multiplying it, we're looking at the business as a whole.
Speaker 1:Here again, what you're really doing is just what is the stuff in the bar worth? So literally, you make an inventory, all the equipment, and if you're going to do an asset valuation for a bar or you're looking to buy a bar that's closed and you're trying to figure out the assets and when I say all the equipment, I mean literally everything that can be taken out of the building and resold. And if there are forks, that includes the forks, right? If there's a cheese grater, that includes the cheese grater Literally everything that would be included in a sale or a deal, or just trying to determine the value of what this is. And so you take that inventory, you add it up and you get a value.
Speaker 1:Now one of the things I will say is there are two caveats here. Caveat number one is this has to be equipment or things that you can pull out of the business and sell. So I will laugh quite often when people talk about, well, the value of the hood in a restaurant or in a bar. Now, if you have to have a hood, obviously there's a lot of expense related there. There's a lot of time and effort and a lot of construction that is required to put in a hood, and hoods cost a lot of money. There are plenty of bars and restaurants out there that have hood systems installed that are costing them well over $50,000.
Speaker 1:But when we go to do an asset valuation. Is that hood still worth $50,000? Well, a, no, because it's been used, but B can you take it out? Can you take it out and sell it? And the thing about a hood is, yeah, you can take it out and sell it. That's absolutely plausible to do. But by the time you take it out and you sell it and then you patch the hole that you just put in the roof or the wall or wherever that's venting out, you're generally not ahead or you're making very little money. So a hood in and of itself has very little value. So you need to think about things like hoods, built-in walk-ins, whether that's a cooler or a freezer. Anything that is part of the building and would cost more to take it out than it's worth, really probably should not be included in the value of an asset sale, because it's not really an asset you can sell. It's kind of, at that point, just part of the building.
Speaker 1:Now, the other caveat when we're talking about asset sales is it's really hard to determine what restaurant equipment is worth. So when we think about restaurant equipment, I like to relate restaurant equipment a lot to cars. You go look at a new car. It's sitting on the lot. It's $50,000. You drive it off the lot, you drive three blocks down, you park it in a parking lot, you go to sell it. It is definitely not worth $50,000 anymore. It is worth some fraction of that. Most cars take their biggest hit of depreciation at a single time when you drive it off the lot. The same way, most restaurant equipment will take its biggest hit in value, as far as the market's concerned, as soon as you plug it in and use it. So equipment is almost never worth even 75% of what it was brand new, even if you bought it yesterday.
Speaker 1:If you're going to then do a valuation based on assets and try to say here are all the assets and here's what they're worth, it can be very difficult to figure out what that value should be, and so the easiest way to do this, and the only way I really know how to do this, is to look at auctions in the area for restaurant equipment, look at sold prices, look at what you can go buy something for, look at Facebook groups and see what are the prices people are charging in the market right now for similar equipment, and if you do that, you get kind of close. If it's a mixed bag of equipment, if we're looking at a restaurant that's been in place for 25 years and we have some stuff that's old, some stuff that's new kind of have things all over the map equipment-wise. A decent way to estimate is to take 50% of replacement value. That is the amount it would cost you to go in the market and to buy all those things. 50% of that's probably an all right guess as to what your assets are.
Speaker 1:But again, with the asset valuation method, all we're doing is coming up with a list of everything and then determining what it's worth. And, like I just said, determining what it's worth can be difficult. Asset valuation method is really not something you want to use, unless you have a bar that's closed that you're looking to buy, or a bar that has so little income that the value of the assets, the value of what's in place, exceeds the value that you would calculate using either the gross revenue or seller's discretionary earnings methods. Now, with both seller's discretionary earnings and gross revenue, you notice I came up with a range and that range is pretty large, right, if we're talking about a million-dollar-a-year revenue bar, using gross revenue valuation method, we're looking at between $250,000 and $400,000 worth of value coming from that bar. So how do we decide? Is it $250,000 or is it $400,000? Well, we look at some% on gross revenue or 3.5 times on seller's discretionary earnings.
Speaker 1:If the bar is in some way exceptional and I know exceptional doesn't really it's not an easy thing to define, but if something is exceptional, I'm of the mindset you know it when you see it. And the other reason to say hey, we're going to bump this range up a little bit is if you're doing over $2 million in revenue and to be real frank, that 2 million might be a little bit of an old number. We might need to look at more like 2.5 after all the inflation we've had recently. But 2 million or higher we can look at a higher valuation multiple. But even within that normal range right, a million dollars in revenue we're looking at $250,000 to $400,000 as the valuation.
Speaker 1:How do we know where to go in that range? So I like to look at five factors and if you read about valuations online, if you research this subject, you'll find that some people use three, some people use five, some people use different factors. So there are different ways to do this. But these are the five things I really like to look at to try to figure out where in that range should something be? The first thing is the equipment and the assets. Obviously, if everything in the bar is 25 years old, it's not worth quite as much as if everything in the bar was a week old. So again, kind of like we talked about with asset valuation, we're not really going to be able to easily define what all the equipment and stuff is worth. And if you were talking in a range and all that, it's less impactful. But essentially if there's a bunch of really good equipment, we go towards the top of the range. If the equipment's all old and falling apart, we go towards the bottom of our range, regardless of using the gross revenue or seller's discretionary earnings valuation methods.
Speaker 1:The second thing I like to look at is location and lease. So obviously there are good locations, there are bad locations, there are people that have killer business in bad locations. There are also people that have bad business in good locations. But generally speaking, a better location means that you have a better potential to make revenue. So a better location, that bar is worth more. It just has more potential to it, given where it's located.
Speaker 1:The other thing here we're looking at is the lease. So say you're buying a bar that has existed for eight years and it had a 10-year lease with no options. Well, that means you only have two years guaranteed use of the property. So that's not really a positive indicator. That's going to push us towards the top of that valuation range. Now, conversely, say it was the same bar. They're eight years into a 10-year term, but they have two five-year options coming after that. So you buy the bar. You know you can have control at space for the next 12 years. So you buy the bar. You know you can have control at space for the next 12 years. That's a lot more reasonable, especially when you think about the fact that you're buying a bar.
Speaker 1:Your chances of making your money back in two years. It's not great, unless we're talking about something that has a lot of revenue, in which case you're paying a lot more. It's really hard, unless you just grow the crap out of the business, to pay off a business purchase in two years. So if two years down the road you have a landlord issue, you can't get a new lease. You might lose money. Now if you have 12 years, over those 12 years you should have paid your bar off and more and be making great money. So the length of the lease is essentially giving an idea of how long you have to make your investment back and the opportunity you have to actually make money over the course of the whole venture. So longer leases we tend to move higher on that valuation scale. Shorter leases we tend to move lower.
Speaker 1:The third factor I like to look at is customer-based popularity concept, kind of all that soft, fluffy, feel-good stuff, if you will, about a bar. So if the customer base is really strong, if there's people coming in and out, obviously this will show in the numbers as well. But sometimes you have really really small bars that aren't doing a huge amount of money but are packed all the time. You know, if you have a bar with 10 seats and all 10 seats are full and those 10 seats more than cover the expenses, that generate a profit, it's a lot less risk than a bar with 100 seats where 20 of them are always full because you have higher expenses, because you have more space. So your customer base, the popularity that is going to play into what the bar is worth and kind of help us determine where between that 25% and 40% of gross revenue we would be, or where between 1.5 and three times of seller's discretionary earnings, we would be.
Speaker 1:Now. The other thing that's included here is the concept. Some concepts are just better than others and I'm not a huge Bar Rescue fan. If you watch Bar Rescue, there are some concepts in there that just will never work, things that come to mind. There was a bar that was on that show years ago where they had a bunch of board games. It was like a kid's bar with board games and stuff on the ceiling. There was another one where they had a pirate bar Now a pirate bar, I think that was in like Philadelphia or something. You know. In Key West it might work, but in the middle of Pennsylvania. You know, in Key West it might work, but in the middle of Pennsylvania not really feeling it. So the concept will help dictate where it falls. If you have a really good popular concept and a really good popular concept can just be a regular neighborhood sports park you can work towards the higher end of the range. If you have a concept that is weird or different or that people aren't going to be comfortable with, we're looking towards the bottom of that range.
Speaker 1:The fourth thing I look at is liquor licenses and other transferable licenses. So this is going to depend a lot state to state, county to county, region to region, because in some areas liquor licenses are worth a whole lot of money. I know there are some places in the United States where a liquor license sells all the time for around a million, million plus. There are other places in this country where you can get a liquor license from the government with no problem for under $1,000. So that license it depends on what the laws are, how you get them in your state or your country and, if it's transferable, what that value is. And to give another just stark example of liquor license values the county where I live because Indiana does liquor licenses county by county, the county where I live there are available liquor licenses. I can go to the state tomorrow and get a liquor license for the state registration. So I forget what it is. Off the top of my head I think it's $1,500. So for like $1,500, I can get a liquor license.
Speaker 1:The county next to me has been maxed out on liquor license forever and there's a major university. A liquor license there costs about $200,000. And I'm talking about a 10-minute, 15-minute drive and the value of a liquor license goes from basically zero to in excess of $200,000. So if you have a liquor license that's worth a lot of money. If I was going to go buy a bar over there, that liquor license we'd have to almost consider on top of the bar purchase itself, almost consider on top of the bar purchase itself, because if we had a bar that was doing a million dollars a year, that gives a valuation in the range of $250 to $400. But if the license is worth $200, that gives us a value for the bar of $50 to $200, which is too low. So that's going to actually bump us out of that range versus the county where I am now. It's not going to bump us out of the range. It's not necessarily the liquor license is even going to take us to the top of the range. It's kind of a neutral thing because they're available, you can get them. So depending on the value of that liquor license, the transferability of that liquor license and all that sort of legal stuff, there can be an impact on the value and where you're falling in these valuation ranges for a reasonable, fair value of your establishment.
Speaker 1:Now the final thing I like to look at as a factor to kind of figure out where in this rate am I going to fall? Is employees and not necessarily the quality of the employees or anything like that. But are they going to stick around? Now, if you're doing this for your own personal exercise, whether or not employees stick around is not terribly relevant. If you're doing this for your own personal exercise, whether or not employees stick around is not terribly relevant. If you're doing this to sell the bar you have or you're looking at trying to figure out the value of a bar you're trying to buy, employees is more relevant. So I'm not necessarily worried about how many there are or how good they are, even, but are they going to stay in play? Because, especially if you're buying a bar, if you're selling, it doesn't really matter. But if you're buying a bar, knowing that the kitchen manager or the chef and the front of house guys are staying in, that the main bartenders are staying, really mitigates your risk way beyond just determining or just walking in and having no staff. And now you have to rehire and you have an operating business and it's going to create all these ripple effects in how difficult it is to get that business off the ground and sustain whatever business is currently going on. So employees rarely in evaluation would use those to say it's worth more, but definitely if key employees are not going to be involved after a sale. That leads me to push down a little bit in that valuation rate.
Speaker 1:And so to kind of sum up this whole conversation on valuation, you got the three methods, so you got gross revenue and seller's discretionary earnings that are great when you have a thriving business that has good customers. And then you have asset valuation, which is the method to use if you have a business that is not making money or that is closed and you're just buying the assets of that business. And you have these ranges that you fall in and you kind of pick a number out of that range by weighting it against some factors and probably, as I say, that you're thinking to yourself well, there's a lot of variables here and there's a lot of personal choice. And you're right, there is. And so that takes me back to the first place we started this conversation, which is a bar is worth what someone will pay for it, and we can talk about valuation methods, we can talk about how to determine where bars should fall in these standard ranges. You know, everything I've talked about with valuations is pretty well agreed upon, but it doesn't always reflect how bars sell, so just be aware of that.
Speaker 1:Now, before we wrap up this episode, I do want to get to a listener question, and so remember, if you ever have a question, go in the show notes for the episode. Right at the top it says text the show, and if you click that link, you shoot us a text. We will answer your question. When you text the show through that link, I can't respond. So if you want to actually talk to me, give me a call, shoot me an email, go on the website, schedule a strategy session All those are options, but that text the show is the best way to send in listener questions, because that's how we put this all together so that we can address issues that all of you, as listeners, have. And so the question we got this week that I want to go through is from a listener in Tennessee. It says how is the best way to pay yourself as an owner? Now I'm going to give you a non-answer answer on this one, and the non-answer answer is it depends on what type of company you are. Assuming you're in the United States, and if you're not in the United States, I don't even know how to answer it. But this guy's from Tennessee, so they're in the United States, so we can give them the US answer. And when I say it depends on the type of company you have.
Speaker 1:There are different rules about how people get paid in the United States as business owners, depending upon the type of business they own. So if you have a partnership or a sole proprietorship, so you're either filing your taxes on a Schedule C on your personal form or a 1065. As a partnership, you shouldn't be on payroll and so you're taking distributions. You can take those a lot of different ways and, especially as a sole proprietorship, you can essentially write yourself a check anytime you want out at all of this globally and maximizing your tax situation in addition to making sure that you're following the laws. But again, generally speaking, as a sole proprietorship, a Schedule C on your tax return, you can write yourself a check whenever and you cannot get paid through payroll.
Speaker 1:Now, as a partnership, filing a 1065 tax form on your federal taxes for the business, you also cannot take a paycheck. You can't receive guaranteed payments, which we don't have enough time to go down that rabbit hole of tax law, but you can do that as an option, you can't get payroll, and then distributions have to be equal among all partners. So if you're the partner and the manager in a partnership, usually you end up in a guaranteed pay situation. If everyone's just splitting the money equally according to their percentage of ownership, that distribution has to happen, and when one person gets a dollar, everyone gets their shares. And when one person gets a dollar, everyone gets their shares.
Speaker 1:Now where this gets even more complex is if you're an LLC and you've taken a S-corp election, which for a lot of bar owners, especially sole proprietorships and owner-operators, the S-corp election is the way to go. But again, talk to your CPA. Like I said at the beginning of the episode, I'm not a lawyer. I'm also not an accountant, so definitely talk to your CPA and get that advice from them on whether or not you should be an S-corp. But usually for the vast majority of owner-operators that's going to be an advantageous spot to be, and as an S-corp owner you pay yourself both payroll and distribution, so you need to be on your payroll and then you can distribute to yourself money outside of payroll.
Speaker 1:The big advantage here is, if you are that Schedule C taxpayer sole proprietorship, you are going to pay self-employment taxes, which is about 16% on everything that comes out of your business. If you're a Schedule C, you're not paying self-employment taxes, which is about 16% on everything that comes out of your business. If you're a Schedule C, you're not paying self-employment taxes on everything that comes out of your business Employment taxes like standard Social Security, fica, which is what makes up that 16% of the self-employment taxes through payroll and then your distributions are not subject to self-employment or F payroll and then your distributions are not subject to self-employment or FICA taxes. They're only subject to income tax. A lot of people hear that and they go oh my God, I'm going to have a Schedule C, I'll pay myself five bucks a week and then I'll take a bunch of distributions.
Speaker 1:Unfortunately, it doesn't work. You have to pay yourself a fair and reasonable wage. There are a lot of ways to determine a fair and reasonable wage and rather than into all of that, I highly suggest, if you are an S-corp and you're trying to figure out how much should be my payroll, how much should be my distributions, talk to whomever's doing your taxes. Make sure that you're looking at it not just in terms of from the bar, what makes sense, because that is going to come into play, but also look at your entire financial picture. And so how is the best way to pay yourself as an owner depends on what type of company you are. It depends on your overall financial picture whether because for a lot of owners, the bar is not the only thing they own and it's something that you really should discuss with your CPA or your enrolled agent or your tax lawyer, depending upon which of those three you use, and then determine out the best plan for yourself.
Speaker 1:I will say, about eight times out of 10, the correct option is S-Corp, put yourself on payroll and then have distributions. But again, it's all going to be specific based on your link in the show notes to ask that question, and we'll get that answered the next time we do a non-guest episode. And then also, if you want to talk to me, if you're looking to get more insights on your business, if you want to talk about strategy, if you want to talk about anything really related to the bar industry, go down to the show notes. There's a spot where you can book a strategy session with me and we'll take about 30 minutes, sit down and talk about whatever questions you have, and then we can also see if there's a good way for us to work well together With that everyone. I hope you have a wonderful rest of your day and we will talk again later.
Speaker 2:Thanks for listening to the Bar Business Podcast. Make sure to subscribe so you don't miss any future episodes. Check out our website at barbusinesspodcastcom and join our Bar Business Nation Facebook group for more strategies and tips.
