Buying a liquor store has often been thought of as a solid, stable business, which is less prone to economic downturns, and can be absentee-run. While it is true in fact that this is generally a stable sector of the retail landscape, there is a lot that most go into a decision to buy a liquor store and it is not, in most cases, a good "hands-off" business.
Typically, a retail business is driven by location. In a liquor store, while location is of course very important, it is not the most significant issue to consider.
License Issues Are Crucial
Obtaining the necessary licenses to operate a retail liquor store has really become a complicated issue in the past few years. In fact, it is the number one cause of deals falling apart, and forcing some liquor store business owners to abandon their goal of selling their businesses altogether.
There are a few major aspects related to obtaining the necessary license to operate a liquor store for sale.
- Every city, county, and state has a different set of laws and guidelines. In some areas, you can simply have a license transferred without any fanfare from the current owner to the new one. In other areas, the new owner need only apply for a new license.
- In other areas, there are actually moratoriums on new licenses and so the store cannot be sold at all.
- Still, in other locales, licenses to operate a retail liquor store are traded like stocks on the open-market. Prices are dictated by demand; in some areas, the costs can be over one million dollars (far more than the actual price of the business).
The lesson here is simple: before you get too deep into analyzing any liquor store for sale, learn the specifics related to licensing for that particular location. On this note, it is fine to get feedback from the seller or broker, but do not take their word for it. Investigate this yourself with the appropriate governmental agencies.
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.
On this note, liquor stores are typically priced at a business value plus inventory. While that is all fine and good, making sure that the total price fits within your right investment parameters cannot be overlooked.
This Is Not An Ideal Absentee Run Business
Despite what some people believe, a liquor store is not an ideal absentee-run business. In fact, it has all of the most typical components that make it the most unlikely of candidates fro you to hand over to someone else to operate without your involvement.
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 alone amongst others, a liquor store needs a hands-on owner operator or one with a trusted family member at the helm.
The flip side is that the hours can be arduous so make sure you are prepared to work hard and/or you have access to competent staff to assist you.
The Landscape Is Changing
Years ago, you needed a store full of booze in a decent location, and you could make a good living owing a liquor store. That is no longer enough.
Tastes are changing. Sure there are still pockets of traditional beer alcohol drinkers but in most locations wine and specifically alcohols with a wide array of flavors are becoming the "taste du jour". Wine boutiques and mega stores are growing rapidly.
You want to look for a store that has a good product mix. And, if any store has built a reputation on great selection and knowledgeable staff, it can be an ideal situation. But, you have to be certain that you have, or can hire people, with the same degree of product knowledge as the seller, if in fact he was the one who has built the stores reputation.
Of course location is important; it always is for a retail business. However, it may not be as crucial as other types of retail businesses.
If you offer a wide selection of product, have additional items like lottery and tobacco, and are conveniently located to your customers, that is a nice mix to have in place.
On the other hand, if the store competes solely on price, then location is everything. To this end, having a long-term lease, at favorable terms, may become the most significant aspect of the deal.
Poor Books and Records
Liquor store owners are notorious for keeping poor books, and skimming off cash. While this may sound enticing, it is, in fact, a terrible negative for several reasons:
- It will be difficult, and perhaps impossible to determine the real profits.
- Sellers will certainly factor in this unreported income to their asking price but that can be completely unreasonable. My advice to you is simple: "If they can't prove it – you can't pay for it!".
- Rest assured that if the seller is stealing cash from the business, so too are his employees.
This is something you absolutely must change when you own a liquor store.
You can, with the right plan, reconstruct the financials, but again, if the seller cannot provide you with ample documentation, then you cannot simply trust when they tell you: "By the way, there's lots of cash that never shows up on the books". They can't have it both ways – if they have been stealing from the government and avoiding taxes, they cannot get paid again by building in this mystery revenue and profit to their asking price.
I certainly do like the liquor store business. They can be stable businesses, regardless of the economy, and certainly worth investigating. Like all businesses, there are a lot of issues to consider that are unique to buying a liquor store and so you have to do your homework and be well-prepared to deal with the traps that inexperienced buyers fall prey to when looking for a liquor store business for sale.