Liquor stores are typically considered an excellent option for entrepreneurs who aren't interested in micro-managing, but that isn't always the case. Liquor store owners must not overlook that running this type of enterprise requires far more close organization, solid customer service skills, and good teamwork than most other businesses. Sellers and buyers determine value around costs, but these costs do not characterize the business value of either party. In this blog, we'll cover how to assess the value of your alcohol business.
In some states, it's relatively easy to transfer a license to another state, but in others, new permits are not allowed, and you can't sell your business. In California, you need a valid liquor license to sell any form of alcohol. Application fees and annual fees vary depending on the type of license applied in California. California licenses can be split into two categories: General and Non-General.
The Most Important Factors in Liquor Store Valuation
- General license: Hard alcohol = included in the Public License. What are the types? Types 477,62, and 70 have General Licenses. Types 41, 42, and 61 have Non-General Licenses.
- Both California and the federal government impose excise taxes on liquor. California liquor stores are required to pay a state excise tax of $3.30 per gallon for each alcohol sold, in addition to the state excise tax.
- Effective inventory management is vital for profitable liquor stores so that the owners have downtime. If business owners want to be more hands-off, they need to set up an inventory management system and monitor it carefully.
Managing the books
- Books and records need to be tidy. Liquor store owners have a terrible reputation in the business world for forging documents.
- Inventory Costs - Potential buyers should be informed that the liquor store is valued as the sum of corporate value and inventory, and the total price is within budget. Did you know that liquor stores can flip inventories as much as 8-10 times each year? Make sure the inventory sale is current, or you could be stuck paying for order items you don't need.
After reading over the above information, it's now time to look at different valuation methodologies.
Methods for Liquor Store Valuation
Depending on the circumstances of the sale at the liquor store, the store broker will evaluate the different types of liquor stores. The most common ways to assess a liquor store are:
- Asset-Based Approach - This method evaluates a business as a constant concern. Supplies and equipment sold to consumers are considered property. It determines the appropriate price by calculating the fair market value of all its assets. This is only done when a business is not profitable.
- Go-to-Market Method - The business's current market value is calculated using store sales. Although selling a business is not common, if another alcohol store has sold about six months recently, this provides a solid reference about the value of the current business market.
- Income approach - Income valuation techniques, cash flow, or the owner is the best form of company assessment. To estimate the purchase price, check the available debit of the store, cash sent payroll, profit, sales, arbitrary spending, cash flow, and surplus.
Liquor stores are mainly prized based on their income. Seller's Discretionary Earnings (SDE), Owner's Benefit, Adjusted Earnings, and other formulas are used to value liquor stores.
Seller's Discretionary Earnings (SDE): A standard cash flow multiple used to value small business transactions is the Seller's Discretionary Earnings (SDE). It starts by calculating the business's operating profit before deducting the projected costs the new owner may not incur. Owner's compensation, owner's expenses, and other expenses, such as non-recurring or unrelated business expenses, are all examples of such costs. To see more on Depreciation, see Veristrat.
You'll have to know how to price a liquor store on the off chance that you're trading one. Everyone wants to get their cash's worth and maintain a profitable business later as a purchaser. As a vendor, you need to get the most money for your organization, particularly assuming you've put your heart, soul, and sweat into it. Well-established liquor stores with strong merchant connections, high stock turnover, reliable laborers, refreshed existing resources, and a full-coverage alcohol permit will sell for more cash.
These perspectives may be disparate, but it ultimately depends on you to determine how to compromise and acquire a decent arrangement for both purchaser and merchant. While analyzing how to value a liquor store, remember that legitimate alcohol organization valuation is a craft, not a science.