Bar Gets Recipe for Growth

After serving up drinks for several years in West Los Angeles restaurants, Dennis Nelson wanted to buy a bar of his own. So when the Bleacher Seat Tavern in Redondo Beach went on the market in 1998, Nelson swooped in to purchase it with $80,000 borrowed from his family and credit card companies.

But like a hangover that follows a night of revelry, the transition from bartender to bar owner has brought some significant headaches. Nelson managed to boost sales in the months after the purchase, but that growth soon flattened out. Efforts to broaden the customer base have found little success. And cash flow remains extremely tight, delaying plans to spruce up the bar.

“It’s very much a week-to-week situation,” Nelson said. “What money comes in goes right out and I’ve not been able to put any in the bank.’

Consequently, Nelson’s attempts to upgrade the somewhat stark sports bar to a friendly Irish-theme pub have been put on hold. And he’s the first to admit that the Bleacher Seat Tavern in its current condition can appear uninviting to potential customers.

“It does look like a grungy dive bar,” Nelson said of the tavern, which has unfinished floors and is dominated by pool tables. “Sometimes, people take one look in here and keep going.”

Despite the problems, the outlook for the Bleacher Seat Tavern is not hopeless, said Janet Lowder, a consultant with Restaurant Management Services, who analyzed the bar’s situation.

Monthly sales regularly top $20,000 and the clientele is loyal even if it is not growing, she noted. The business is next to a large community of condominiums and apartments that its target audience--twenty- and thirtysomethings--calls home. And the many businesses near its Artesia Boulevard location make it a natural for lunch and after-work gatherings.

But Nelson will not be able to capitalize on those opportunities until he succeeds in changing the character of the bar, she said. To begin that transition, the Bleacher Seat Tavern needs to start selling food to go along with the drinks.

“Stand-alone bars serving only drinks are generally a thing of the past,” Lowder said.

Nelson also needs to make his business more appealing in other ways.

“The bar needs to be cleaned up a little and needs to have more seats so people can relax,” she said. “Then it would start to have the feel of a neighborhood pub rather than a rowdy bar. It would be a better concept for its market.”

Nelson agrees with those suggestions: His goal since purchasing the bar has been to alter its character. But after obtaining $10,000 more from credit cards to buy equipment, he has tapped out his financial resources.

“I had envisioned approaching the Small Business Administration and some banks to get some money to remodel, but I haven’t found any lenders willing to work with me because I’ve only been in here a short time,” he said. “The only loans that I’ve been offered have been at ridiculously high interest rates.”

Unable to get a loan, Nelson recently began looking for a partner willing to inject some money into the business, a move that Lowder applauded. That search looks likely to pay dividends after a customer agreed to exchange $35,000 for part ownership of the bar.

Though Nelson had hoped to raise $70,000 to remodel the tavern, the $35,000 will allow him to achieve his major goals, which include constructing a small kitchen and replacing a dated wood and vinyl bar with something more appealing. He also intends to remove a pool table and replace it with tables and chairs. Other improvements, such as installing a new floor and upgrading the bathrooms, will have to wait.

“I expect that a kitchen will add to our cash flow, so that will be the first priority,” Nelson said. “Hopefully, generating money from food sales will allow me to do other improvements.”

Lowder urges Nelson to keep his food offerings simple. “Go with appetizers, sandwiches, burgers and salads,” she said. “It’s important to keep the menu limited to begin with.” More diverse choices could result in food waste and would require several new employees.

Nelson is receptive to a simple menu, especially as he intends to staff the kitchen with a single cook.

Feeding customers will be a good start for the Bleacher Seat Tavern, but it will not be a panacea, Lowder said. There are several managerial issues Nelson needs to address.

The first is the lack of formal monthly financial profit-and-loss statements. Nelson spends so much time working at the bar that his bookkeeping has suffered. Business revenue and expenses are recorded on a personal computer program that also contains personal entries, which makes getting an accurate monthly performance snapshot difficult.

“Rather than mixing personal items with business expenses, he needs stand-alone business statements to get a real grip on the business,” Lowder said. The statements would be an important managerial tool that would allow Nelson to flag areas needing attention.

After crunching a few numbers, for example, Lowder noted that the bar’s cost of sales amount to about 33% of its revenue when 25% would be a more appropriate figure for his type of business, she said. Spending as much as 14% of revenue in some months for local bands to perform, meanwhile, is about triple what many similar businesses spend on entertainment expenses.

In addition to preparing and analyzing financial statements, Nelson needs to institute some inventory controls. He has no way of knowing whether drinks are being pilfered, an issue that caught his attention recently when he noticed his liquor bill rising as his sales remained flat.

“The operational controls are not adequate,” Lowder said. “At a minimum, one time per week an inventory of product usage should be taken for a particular shift and compared against the cash register tape.”

In addition to getting a better handle on his inventory, becoming more vigilant is likely to discourage theft, a frequent problem in the food and beverage business, Lowder said. “You might not want to upset employees by implying that you don’t trust them, but this is a business,” she said. “Everyone needs checks and balances.”

Strong inventory control will be even more important when Nelson starts selling food.

If he can complete his remodeling, offer some food and get a better grip on his finances, he has a good chance of markedly improving the bar’s fortunes, Lowder said.

“He’s got some very typical problems of many small businesses in that he’s undercapitalized and doesn’t have the right management controls in place,” she said. “Going from working at a bar to owning one is a very big step. But I think he’s done a smart thing by trading some equity for some cash that will help his future. I think he can make it if he takes the right steps.”

Nelson said he had thought about several of Lowder’s suggestions but hadn’t had time to try them. He said he is committed to running his bar more professionally.

“I’m setting up some formal financial statements with the help of an accountant, and I’ve started taking inventories,” he said. He hopes those measures will help until he gets the kitchen built.

“I’ve got an architect drawing up some plans for a kitchen, and I’d like to get it finished this summer,” he said. “If I can get that done and the bar replaced by the beginning of football season, I think we’ll be in good shape.”

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This Week’s Company Make-Over

* Name: Bleacher Seat Tavern

* Location: Redondo Beach

* Type of business: Bar

* Status: Sole proprietor

* Owner: Dennis Nelson, who purchased the bar in 1998

* Start-up financing: $90,000 (purchase price and equipment cost)--loans from family, credit cards and previous owner

* 1999 sales: $270,000

* Employees: Four

* Customers: Local residents

*

Main Business Problem

How to improve the bar to broaden the customer base and increase sales

*

Recommendations

* Begin selling food in addition to alcohol

* Find a partner to provide much needed funds for remodeling

* Begin preparing formal financial statements

* Implement inventory controls to deter theft

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Meet the Consultant

Janet Lowder has worked in the restaurant management industry for 16 years, including 10 years as a consultant for Restaurant Management Services in Rancho Palos Verdes.

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You can download or print the application form for a Business Make-Over from the Los Angeles Times Web site at https://www.latimes. com/bizmakeform. You can also request an application by mail. Write to: Business Make-Over, care of Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016.