How to Sell a Liquor Store

How to Sell a Liquor Store

Posted on October 02, 2017
Liquor stores are known to be solid, stable businesses, which are immune to economic downturns.  There is little chance of obsolescence and profits can be quite attractive.  For these reasons, liquor stores have always been popular on the for-sale market.  

License Issues
There are a few major aspects related to obtaining the necessary license to operate a liquor.  Every city, county, and state has a different set of laws and guidelines. In Indiana, you will need to apply for a 217 license.  There are several restrictions, such residency requirements, that must be met prior to a license being issued. The license is a valuable asset with prices ranging from $100,000 to $300,000 in some areas.  TIP: Before you get too deep into a conversation with a buyer, learn the specifics related to licensing and make sure that buyer meets the criteria.  

Inventory
A good liquor store will turn its inventory 8 to 10 times per year. Just because there may be a lot of inventory as part of the sale, does not necessarily mean it is a good thing. You want inventory that is current, and readily sellable.  Some specialty liquor stores that focus on fine wine and craft beer might turn the inventory as little as 3 or 4 times per year.  Liquor stores are typically priced at a business value plus inventory. TIP:  When you're ready to sell, try to reduce your inventory.  You only will get dollar for dollar for what you paid for it.

Absentee or Not?
A typical liquor store has a high degree of cash sales, coveted merchandise, susceptible to crime in some cases, and long hours. For these reasons, a liquor store benefits form an owner operator.  An owner can install cameras and a good point-of-sale system to minimize shrinkage, but industry average is 1-2% of revenue. TIP: Have a good idea of what your shrinkage rate is and develop a plan to reduce it that you can present to a potential buyer.

Product Mix
It’s important to match your product mix with your target demographic.   Wine boutiques and mega stores are growing rapidly.  Stores built on a reputation of great selection and knowledgeable staff can be an ideal situation.  However, if your store is in a rural location or lower income, traditional beer and liquor products are your best bet. TIP: Make sure you know what products make your store successful and communicate that to a buyer.

Location
Location is important for a retail business. If you offer a wide selection of product and have a knowledgeable staff you might be able to price your product at a premium.  If your store competes solely on price, then location is everything. To this end, buying the real estate in addition to the business is key.  TIP: Selling the real estate is ideal, but if you don’t own it, make sure you have a long-term lease in place that a buyer can assume.

Books and Records
Liquor store owners are notorious for keeping poor books. However, when pricing a business, the motto applies: “if you can’t prove it – you don’t get paid for it”.  To maximize the selling price of your liquor store you should maintain accurate and organized records.  Keep all records pertaining to the store up to date, easily accessible, neat and organized. This makes running the business easier for you and provides transparency over the business’s trading performance.  TIP: It’s not too late to clean up your financials. 

Pricing the Business
Liquor stores have two pretty reliable methods for pricing.  The first is a percentage of annual revenue.  A typical store will be price at 35%-40% of annual revenue.  A store in a growing area with very limited licenses available could be priced at 45% of revenue.  The second method is based on EBITDA.  The multiple of EBITDA is generally in the 2.5x – 3.5x range.  As discussed above, inventory is valued in addition to this price range.  There are other methods of valuation including a multiple of gross profit plus the license value, but those are less generally accepted.

In good economic times, it’s great to own a liquor store.  In poor economic times, it’s even better to own a liquor store.  There are a lot of moving parts when selling a liquor store including, valuation, financing, license restrictions, real estate etc.  When it comes time to sell your liquor store contact a business broker and they can help guide you.