What makes a liquor store profitable?
In this video, Harry Sidhu, President of Mission Peak Brokers, discusses liquor store profits. He explores what makes a liquor store profitable. He breaks down the liquor store profit margins for various categories of items or inventory sold in a typical liquor store.
Harry also discusses the direct correlation between liquor store profits and the valuation of a liquor store business. Consequently, he discusses the factors related to multiples of earnings that are used in determining the Seller Discretionary Earnings (SDE), a typical type of business valuation for most liquor stores sold in California.
What makes liquor stores profitable?
So many factors come into play in making a liquor store profitable. The location of a liquor store, local competition, stable personnel, marketing systems, inventory systems, type of inventory, supplier/vendor relations, rent expenses, lease term, security systems, etc.
As such, each of these factors influence the bottom line of liquor store profits. When a liquor store has a long-term lease, consistent sales, low payroll and occupancy expenses, and stable profits of over 30%, then that liquor store is highly marketable for sale. High grossing stores in proven locations are hard to replicate and therefore highly valuable and should sell for higher multiples.
Moreover, it is important for the business owner/seller and buyer to consider key elements when transacting a liquor store business sale. These key factors are necessary to fully explore prior to transacting a liquor store sale.
Key Liquor Store Valuation Factors
- why the business is being sold,
- the lease terms,
- additional income,
- any issues pertaining to the liquor license,
- equipment age/maintenance,
- gross profits
- category profits
- cash flow,
- whether new categories can be added,
- whether new services (delivery) can be added
- stability of staff
- closest competition
- back taxes owed
When considering these factors in the sale of a liquor store, it’s also important to determine how long sales have been steady and profitable. If there were any variations, the seller must account. It’s also important to determine the salability of inventory.
Liquor Store Multiples
While liquor stores are valued as a multiple of earnings, the multiples vary across the United States. In California, multiples are fairly generous and liquor stores can be one of the best retail investment compared to other business opportunities.
Harry explains how liquor store multiples are used in business valuations. Additionally, he provides insight as to what influences these multiples. Moreover, he further explains how business sales and margins eventually affect the sales price of a liquor store.
So what exactly influences multiples?
- gross profit
- occupancy/lease expenses
- lease terms
- category sales
- payroll expenses
- supplier relationships
- liquor laws & regulations
- inventory supplies/old inventory
- automation of inventory
- security issues
- sales tax
Liquor Store Profit Margins
When Mission Peak Brokers analyze a liquor store’s financial statements, they are looking to see whether the liquor store profit margins are within industry standards. Liquor stores that do not meet industry standards get a lower multiple while those that exceed industry standards, have a much higher multiple.
Typically, a well run shop should see liquor store profit margins of 20-25%.
How Mission Peak Brokers can help you buy or sell a liquor store.
For more information on all things related to Liquor Store For Sale in California, Mission Peak Brokers is here to help.
Should you need assistance buying a liquor store, or selling a liquor store, contact Mission Peak Brokers. We have performed hundreds of liquor store valuations and closed numerous liquor store deals. We know the ins and outs of what makes liquor store valuable and how to get the deal done.
For more information on liquor store business opportunity sales, check out our Liquor Store Brokers hub.
In addition to selling liquor store business opportunities, we also manage liquor store commercial real estate.
We are the #1 Liquor Store Brokers in the Bay Area!