A liquor store business is one of the more common sights within a retail landscape and they are often a valued component of your neighborhood strip mall. The majority of people seem to think that liquor stores represent cash machine businesses which are less prone to economic downturns. Keep in mind that there are a great deal of factors to really think about when purchasing a liquor store, and you also have to remember that in most instances this kind of business doesn’t make a good “hands-off” enterprise.
One of the most significant issues to take into account and perhaps even more important than a location, is the acquisition of a license. The steps required to acquire the all-important license to run a retail liquor store can be quite complicated, so much so that the endeavour sometimes results in people walking away from buying a liquor store entirely.
Always ensure that you develop a clear understanding of the circumstances that will effect your chances of acquiring the essential licenses to run a liquor store:
• Generally, every authority – city, county or state – operates a different set of rules and guidelines.
• Some areas will allow you to transfer a license without any problem, while others dictate that you need only apply for a new one.
• On the opposite end of the spectrum, some municipalities specify a moratorium on new licenses, meaning that the store cannot even be sold!
• Retail liquor store licenses can be held in such high demand in other locations that they are treated just like stocks on the open market.
If demand is high, costs can be over $1 million, representing more than the actual price of the business.
Ensure that you’ve got a clear understanding of the details relating to the licensing in your specific location. Conduct this research yourself with the appropriate government agencies and do not take anyone else’s word for it.
In a better than average liquor store, inventory is usually turned over somewhere between eight and 10 times each year. While there may be a good amount of inventory included in your deal, make sure that it is current and readily saleable. Liquor stores can be priced at business value plus inventory, but make sure that this total price can be broken down to fit within your own investment parameters.
In this kind of business, you shouldn’t even consider the idea of becoming an absentee owner. When it comes to liquor stores, they really do demand a hands-on approach. Just think about it, there’s a high degree of cash sales, a lot of valuable merchandise, long operational hours and the business is susceptible to crime. You will have to do your best to ensure that you hire really competent and trustworthy employees, as the working hours can be quite long.
Ensure that you choose a store that has an excellent product variety mix. No longer is it okay to operate with a store full of booze in a decent location. People’s preferences are evolving as they’re becoming more cultured, with new wine boutiques and megastores appearing daily. A wide variety of specialized products and flavors are now highly in demand by the masses.
If you are interested in buying a liquor store which has a great reputation based on knowledge and selection, do make sure that you have, or can hire people who possess, the same degree of product knowledge as the seller.
A good liquor store may work well in any environment and location may not be the most critical element here. If you provide a fantastic selection of products (a good mix between wine, liquor and beer) plus in demand items like lottery tickets and a complete tobacco selection, you could easily be onto cash machine. If you will need to compete solely on price, however, then you must pick the right location. Negotiate the best lease contract with the most favorable terms.
Remember, that if the seller cannot prove it then you can’t pay for it! Liquor store owners can be notorious for keeping poor records or skimming off cash. This is very negative for a number of reasons:
• It may well be almost impossible to determine the real profits.
• The seller will want to factor in unreported income to his asking price but this can be completely unreasonable.
• If the seller is stealing cash, other staff may be as well.
Don’t take them at their word when they say that there will be “a lot of cash” that never shows up on the books, unless they are just telling you that and not including this consideration in the asking price. They cannot have it both ways; if they avoided taxes on the income, they cannot get paid again by building in some mystery revenue to the sale price.
Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business.
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