The allure of owning a liquor store is strong because a liquor store is often less susceptible to the effects of economic depressions, making it one of the more stable business opportunities. In addition, its product is much more exciting than the boring widgets produced by other companies, and the perception is that liquor stores are good choices for owners who want to be “hands-off.” In truth, liquor stores require much more oversight than is commonly believed, and one must not be blind to fact that owning a liquor store requires strict management, potent customer service skills, and strategic organization, perhaps even more than most other businesses.
One cannot make an educated decision about purchasing a liquor store without first understanding the following five facts:
Cost Varies by Location
The location of the store to be purchased will affect its sale price, not just because of its desirability, but because of state regulations and licenses. For example, most towns in Massachusetts do not have licenses available, so the cost of a liquor store could conceivably be 50% of the store’s sales or 3-4 times the seller’s income. Retail business is typically driven by location. Location is still very important for a liquor store, but as long as the store carries a wide selection of products (e.g. tobacco, cheese, snacks, etc.) and is conveniently located, business will be sustainable. On the other hand, if price is the store’s sole competition point, location will be paramount. If the store is located on a busy thoroughfare, it is highly desirable to be on the right hand side of the road when heading home from work to allow easier access during high traffic times.
Owning a Liquor Store is a Hands-on Job
Liquor store owners must either be full-time working owners or hire a trusted full-time manager to run the business. The perception that liquor stores are good absentee businesses is an erroneous one, because proper inventory management is extremely important in running a successful liquor store. Liquor stores typically have desirable merchandise, a large percentage of cash sales, and more incidents of crime. After taking into account employee management, ordering, inventory organization, bills payable, and other management responsibilities, a working owner can expect to work more than 50 hours per week to ensure the business runs smoothly and suffers the smallest amount of loss possible. If an owner desires to be more hands-off, it is imperative that they implement an inventory control system and monitor it vigorously.
Licenses are Critical
Every city, county, and state has a different set of laws pertaining to retail liquor licenses, and complications with liquor licenses are the number one reason deals fail, causing the liquor store owners to altogether abandon the idea of selling the business. Depending on where the potential business is located, having the license transferred from one owner to another may be very simple, or the new owner may only need to apply for a new license. In other areas, there are moratoriums on new licenses, meaning the store cannot be sold (at least not in its incarnation as a liquor store). And in still more places, retail liquor licenses are traded like stocks on the open-market; prices are dictated by demand and can actually cost far more than the price of the business itself, especially if a big box retailer is the buyer. Obviously, the specifics of licensing the location should be the first thing a potential buyer thoroughly investigates. This is especially important in Massachusetts where the legal limit of licenses has increased from 3 to 5 and will be increasing again in the near future.
Books and Records Must be in Order
Liquor store owners have a reputation in the business world for skimming cash and keeping poor books (a very easy habit for some owners to fall into when dealing with a cash-heavy business). Although credit/debit cards are being increasingly used, this affects the potential buyer because it may be impossible to determine the business’s real profits. The seller may also factor unreported income into his asking price, and employees may be following the owner’s lead and skimming cash as well. It may be necessary to reconstruct the financials, but the buyer must insist that the seller provide ample documentation to support the asking price. However, if the buyer is adept at keeping books, then better financials may be all the business needs to thrive more successfully than with the previous owner.
Liquor stores are generally priced at business value plus inventory, so a potential buyer must know this and confirm that the total price fits the intended investment parameters. A successful liquor store will turn its inventory 8-10 times per year, so the inventory being offered in the sale should be current and readily sellable; otherwise, the buyer will ultimately be paying for another order of inventory on top of paying for the existing inventory in the purchase of the business. The new owner will also need to establish credit with the vendors and the Mass. Lottery Commission to purchase products and sell lottery products, so good credit is significant for the potential buyer.
Owning a liquor store can be a profitable and enjoyable endeavor, albeit an arduous one. If you would like assistance with buying a liquor store or determining whether a liquor store is good fit for you, please contact George & Company, located in Worcester, MA. Determining the true value of a liquor store will be much easier with the assistance of a well experienced business broker. We have honed our business skills over decades of appraising, selling, and financing small to middle-market companies. It would be our pleasure to assist you in making decisions that will best benefit you. George & Company is listed as Industry Experts by Business Brokerage Press.