Liquor stores are nigh on recession-proof, sell wildly popular products and require no special qualifications to run. But they do require a liquor licence, so you must be an upstanding citizen who can pass various background checks.
They also demand long trading hours, covering evenings and weekends – although perhaps you can afford to hire a manager to run the business part-time or full-time. If the pros outweigh the cons and you fancy entering the sector, then asking prices for liquor stores for sale in Canada range from CA$30k-$1-5m, but a more typical range is more like $200-500k.
Liquor store location
Most buyers will quickly narrow their search because they have a clear idea on the state and perhaps town or city they want to be based in. It’s a simpler choice still if they’re focused on a particular zip code. Commercial real estate is, of course, more expensive in affluent than low-income areas – and interestingly, demand is still strong in low-income areas.
A robust, modern security set up – high-quality locks, CCTV, shutters and so on – could be a big bonus, especially in a relatively high crime area.
George & Co, a Massachusetts-based business brokerage, made the interesting point that a store is far more desirable if the side of the road it’s situated on is busier in the evening than the morning – meaning a greater flow of thirsty commuters heading home from work.
Don’t necessarily be deterred by poor financial performance if you can attribute that to owner incompetence – perhaps evidenced by an overpriced, badly judged product range – rather than an unfavourable location. The former you can remedy with a new approach and signage that signals new ownership; the latter, not so easily.
The location – in terms of footfall, competition and local demographics – and floor space are critical factors as they’re beyond your control. Whether you want to sell craft beers, have the widest range of wines, beers and spirits in the neighborhood or dovetail as a grocery store, these variables will fundamentally constrain your plans.
Valuing a liquor store
It’s wise to get the liquor store independently valued lest you overpay for the business. A business broker can do this for you, as well as help you negotiate with the buyer and handle all the paperwork.
Various methods are used to value a liquor store, including the value of previous earnings, real estate, liquor licences and inventory. Unlike other sectors, neither intellectual property nor the business’s reputation – the brand – are usually taken into account.
Liquor store due diligence
If there’s a gap between the vendor’s valuation and your own, then you have a strong justification to negotiate a price below the asking price. The purchase price, and how you intend to pay for it, is initially agreed only provisionally, pending the outcome of an in depth investigation of the business’s bona fides.
This due diligence period should, according to Diomo Corporation founder and business broker Richard Parker, include assessment of:
- Profit and loss statements, balance sheets, tax returns, supplier invoices, and other documentation that gives a true financial picture, ideally with the help of an accountant experienced in the liquor store trade, who can also help you deal with patchy bookkeeping
- Footfall, accessibility, visibility, local competition, and pending developments like road construction that could sink trade
- Condition of the premises, equipment and furnishings, reviewing maintenance and service records for refrigerators etc and calculating costs of necessary repairs and upgrades
- Agreements with wholesalers and suppliers and whether they will easily transfer to you (though you may be happy to switch to new suppliers)
- Whether the lease is long term and readily transferable
- Whether you can transfer the liquor licence or whether you need a new license entirely. Check license criteria through the relevant state licensing board or commission
- Employee turnover rate and training procedures, if any; and employees’ character, loyalty and competence, potentially meeting them prior to purchase
- Operating procedures, including access to keys, alarm settings, emergencies procedures and so on
What you discover during due diligence should give you the confidence to commit to the agreed price, the ammunition to renegotiate it downwards, or alarming information that prompts you to walk away from the deal altogether.
You can get more information on buying a business from our extensive buyer guides. Read through them to get as prepared as possible before buying your laundry.
