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Drink Up! - How to Buy a Liquor Store

By Richard K Parker

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Published: 26Aug2009
Word count: 750
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A liquor store is one of the more common sights within a retail landscape and they are often a valued component of your neighborhood strip mall. Most believe that a liquor store represents a solid business and is less prone to recession. Note that there are quite a lot of factors to take into consideration when buying a liquor store and you must bear in mind that in most cases this is not a good "hands-off" business.

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 procedures required to get the necessary license to operate a retail liquor store can be very complex, so much so that the issue can often force a potential sale to fall apart.

Make sure that you understand the forces that will affect your chances of getting the necessary licenses to operate 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.

Make sure that you thoroughly understand the specifics relating to licensing in your particular location. Conduct this research yourself with the appropriate government agencies and do not take anyone else's word for it.

Generally speaking inventory is turned over, in a good liquor store, between eight and 10 times per year. While there may be a good amount of inventory included in your deal, make sure that it is current and readily salable. 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.

Don't think that you can become an absentee owner. Liquor stores 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 need to make sure that you get competent and trustworthy staff to help you though, as the operating hours can be very long.

Make sure that you select a store that has a good product mix. No longer is it okay to operate with a store full of booze in a decent location. People's tastes are changing and they're becoming more sophisticated, with wine boutiques and megastores growing rapidly. A variety of different products and flavors are now in demand and expected.

If you are interested in buying a 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 offer a great selection of product (the right mix between wine, liquor and beer) plus popular items like lottery and tobacco, you could be onto a winner. 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. Want to find out more about business buying strategies that really work, then look no further than=> http://www.howtobuyaliquorstore.com/

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