California liquor stores are a veritable gold mines for savvy business buyers. Liquor stores for sale in all areas of California are highly appealing for both first-time buyers and seasoned store owners.
Whether you are seeking to sell or buy a liquor store in the San Francisco Bay Area, Los Angeles, San Jose, San Diego or any other region of our great state, California liquor stores are evergreen businesses that perform well in nearly all economies.
Whether you are buying a well established convenience store, new mini-mart, or liquor store, this business is regulated by California’s Alcohol Control Board (ABC). Since California liquor licenses are limited by population and location to avoid over-saturation of liquor sales, an ABC liquor license, on its own, is highly valuable particularly if it is beyond just beer wine.
The restrictions on California liquor licenses create a base value but whether a California liquor store is lucrative depends on several variables, but none more so than the convenience store owner who knows how to run a successful and profitable business.
Numerous variables go into creating profitable liquor stores to maximize cash flow. The following highlight some of the key elements to consider when transacting California liquor stores for sale.
One of the most critical elements of a successful California liquor store is whether the ABC liquor license is a full liquor license or only permits beer and wine sales. Obviously, the more expansive the ABC liquor license, then the more opportunity the liquor store business has for liquor sales and cash flow. Check out the complete listing of liquor license types in California.
Wherever possible, liquor store owners who are able to upgrade their ABC licensing to a full liquor license would be very wise to do so. Not only does this permit the liquor store owner to expand their inventory, increase sales and net profits, but they also create a business that is more appealing and valuable for sale in the future.
Like many types of businesses for sale, business brokers will all tell you that the longer a business has been in operation, the more desirable an established liquor store business is to prospective buyers. An established liquor store for sale that has been in operation for only a couple of years is no comparison to a liquor store for sale that has been operating for 20 years. Simply put, the more established, the more value. Why? The reason is because the risk is lower since the liquor store has already proven itself to be successful by its longevity.
The old real estate axiom “Location. Location. Location.” is also true for liquor store locations Those liquor stores located in a busy location, with ample parking, and excellent curb appeal will tend to do much better than a dumpy store in the weeds. Liquor stores for sale in optimal locations are highly lucrative business opportunities.
A corner store has extra value. Since it can be seen from 2 different streets, it provides the owner with greater foot traffic.
Liquor stores for sale on a main street in a California city or town can anticipate a higher stream of customer traffic. The busier the street, the higher the customer flow. Combine a main street location with ample parking and broad inventory, and you have a near guarantee of a lucrative, successful business.
Store size is a critical element. If it’s too small, the it limits storage, display and inventory. If the store feels crowded with overstuffed shelves and boxes everywhere, the shopping experience is impaired. If it’s too big, however, then the store owner is wasting money on carrying costs that are not producing revenue and net profit. Ultimately, a California liquor store needs a good balance between retail and storage spaces.
Each square foot should be maximized for efficiency. Having a clean, well-lit store with spacious aisles and pleasing displays increases a positive shopping experience and assures repeat customer sales. Smart storage systems with good inventory management provides the owner with greater control over costs.
Liquor stores with strong, consistent revenue provides the owner with the opportunity to enjoy greater net profit. Assuming the owner manages low fixed costs, such as lease and labor, then there is room for increasing margins while staying competitive. Good print, online and social media marketing for the store increases sales and net profits.
One of the most integral elements of a successful liquor business is a long-term lease with favorable terms for the business owner. Where the business buyer is securing an SBA business loan to buy the business, the lease must amount to at least a 10 year term either by the underlying lease, options to renew or a combination of the two.
A long lease provides the owner with predictable, fixed costs. Ideally, the underlying lease should be 5 to 10 years in duration with 2 options to renew of the same duration. Where the lease is nearing expiration and the owner does not want to renew in order to avoid having any liability on a lease assignment, the business buyer can then negotiate a new long-term lease directly with the landlord.
A nice long lease is greatly enhanced with a commensurate market rental rate or, preferably, low rent terms. Typically, the longer the lease the more controlled the rent. Controlling the monthly rent is crucial for enhancing net profits.
Oftentimes, the lease will be based on a triple net (NNN) agreement which means that the liquor business owner will also pay insurance, property tax and exterior maintenance expenses. If it’s a single unit store, then owner will pay all of it. If the store is located in a shopping center, then the owner will pay their proportional share based on their square footage compared to the total square footage of the retail structure.
If the lease amounts are market or higher, then the NNN should be lowered and vice-versa.
Where possible and feasible, a store owner that can purchase the commercial property as well will enjoy a far more lucrative business. The owner will be able to get a 30 year loan to acquire both the business and commercial real estate through either the an SBA 7a loan or an SBA 504 loan.
Moreover, when the owner is ready to sell the business, they can either hold onto the commercial property and enjoy passive income from the liquor business buyer or sell the commercial real estate and profit from the equitable gains.
Ideally the business is located in a newer or updated building area within an established retail region. If the store located in a prominent position to be seen from a busy street, then return-on-investment will be worthwhile.
Liquor stores for sale should have a business valuation proving business performance. Typically, the business owner will hire a business broker to performa a business valuation based on the past 3 to 5 years of tax returns and most recent profit and loss statements.
A liquor store valuation that is based on 3 to 5 years of financial statements provide buyers with a road map for due diligence to prove to themselves that the seller’s claims of profitability are valid. Good financial management and proof via financial records are one of the most critical elements of a successful liquor store. Proven cash flow is king
The key elements on the financial statements are: Strong revenue, Cash flow and Adequate Inventory Turns. The greater the cash flow, the greater the valuation. When the business brokers performs their financial analysis, they will makes adjustments to standardize the financial statement in a process called “recasting”. The idea here is to standardize the financial statement by removing the business seller’s discretionary deductions.
For example, many business owners deduct their families cell phone plans on their tax returns even when their family members do not work in the business. Looking for these excess deductions is the key to standardizing the financial statement by taking out how the seller does their taxes to their advantage in order to obtain a clear financial portrait particularly the business’ cash flow, irrespective of who owns the business.
Once the financials are recasted, then the broker will then look for a multiple of the cash flow to determine the value of the business. The broker will look at comparable sales for similar California liquor stores for sale. Good performing liquor stores will enjoy a multiple of 3-4x adjusted cash flow while average liquor stores for sale will have 2.3 x cash flow.
Additionally, the business broker will also study the business’ Balance Sheet to determine what assets exactly transfer with the company. Liquor stores have balance sheets that typically reflect:
Where the liquor business has multiple stores, each store is reflected individually in terms of revenue, cash flow, assets and business performance as well as the combination on the business tax records and financial statements.
Check out our extensive resources to help you navigate your liquor store business transaction. We hope you find our resources beneficial in the sale or acquisition of a liquor store business opportunity.
Whether you are ready to sell a business or seeking liquor stores for sale, our liquor store business brokers are available to assist you in brokering your liquor store sale. We specialize in California businesses for sale and, in particular, California liquor stores for sale.
To explore available liquor stores for sale, check out our current listings, featured listings as well as retail commercial real estate for sale.
Should you be contemplating selling your liquor store business, leverage our extensive experience successfully selling hundreds of California liquor stores. Selling businesses like yours is the foundation of our brokerage and the type of business for sale that we have successfully sold for the past 2 decades.
Contact our office if you are considering selling your liquor stores and wold like a business valuation and initial recommendations to help you get started.
If you are seeking to buy a business, we would be happy to work with you in securing financing, evaluating California liquor stores for sale and determining the best business for sale to meet your cash flow objectives.
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