Selling a Liquor Store or Wine Shop

The license comes first

Selling alcohol for off-premises sale requires a license from the state, and often from the city or county as well. In most places the license is tied to a named person or entity and to a specific address. It does not simply move with the business the way a lease or a cash register does. The buyer applies for a transfer or a new license, the licensing office reviews them, and the sale cannot close until the approval comes back.

Review takes time, and the time varies. Some jurisdictions turn it around within weeks and others take several months. Buyers usually fingerprint, submit financial disclosures, show where the money for the purchase is coming from, and sometimes publish a notice or wait through a protest period. A buyer with any kind of record can be turned down. Rules vary by state and your attorney confirms what applies to your store. We tell buyers up front that the license is the longest piece, and we qualify them with it in mind. Our post on buyer qualification describes how we screen.

Some states limit the number of licenses and let them trade on a secondary market, so the license itself has a price. In those places part of the value of your store sits in that piece of paper, and the sale agreement must be written with it in mind. In other states the license is cheap to get but slow to approve. A seller who knows which kind of market they sit in can set expectations accurately.

Compliance history follows the location. Buyers will ask for any violations, citations for sales to minors, fines and warning letters. A clean record shortens the review. An open violation can stall it.

What a buyer pays for

Buyers pay for the cash the store keeps producing once the owner is paid a fair wage. Liquor stores are steady sellers, and many hold up well when the economy softens. Still, buyers want to see sales by category over several years. Spirits, wine, beer, mixers, tobacco, lottery and snacks each carry different margins, and the blend determines how much gross profit a dollar of sales produces.

Location matters more here than in many retail trades. Traffic counts, nearby competition, the type of neighborhood and the parking lot all play a part. In some markets rules limit how close a new store can open to an existing one, which protects an established shop. A buyer will study the trade area carefully, and a store near a new large competitor or a planned supermarket with a bottle department will be priced with that in mind.

The customer base also counts. A store with regulars who come in several times a week, a loyal wine club, local restaurants buying cases, and delivery or pickup orders has a more dependable income than one that relies on passing traffic. Buyers will ask what share of sales comes from repeat customers and from any large accounts. Our post on recurring revenue and contracts explains why repeat business earns a better price.

Inventory and how it is settled

Inventory is the biggest piece of the sale after the goodwill. Most deals value stock at cost and settle by a physical count close to closing. Buyers will not pay for dusty bottles, broken cases, expired beer, or product they cannot sell. Beer, in particular, has a short shelf life, and a count that includes stale kegs or cans will be adjusted.

A clean count requires good records. The point of sale system should match what is on the shelf, and your purchasing records should show what you bought, from whom and at what price. Buyers also look at slow movers. Specialty bottles, allocated wines and rare spirits can be worth a lot, or can be sitting unsold for years, and a buyer will want your reasoning for each category of high-value stock.

Stock cannot always change hands before the buyer holds the license, so the order of events at closing matters. The sale agreement and closing steps must be structured around the licensing timeline. This is a place where a lawyer who knows your state's alcohol rules earns the fee. We set up the calendar with your attorney and the buyer's attorney early.

Distributor terms and supplier relationships

Liquor stores buy from licensed distributors, and in many states each brand is assigned to one distributor in a given territory. That structure gives the distributor the stronger hand, and it gives the store owner a set of relationships that a buyer needs to inherit. Buyers ask about credit terms, delivery schedules, minimum orders and any promotions or rebates. They also ask whether you have any unpaid balances, since distributors can restrict credit or demand cash on delivery for a store with a poor payment record.

A distributor who likes a store may offer better pricing, display help and early access to limited releases. Those benefits belong to the relationship, and a buyer wants to know whether they stay after the sale. We usually suggest introducing the buyer to the main sales reps before closing, once the buyer is under agreement. Some states restrict credit between distributors and retailers, and the rules for payment timing can differ from one state to the next, so the terms of your account matter.

Private label items, exclusive products and any deals with local breweries or distilleries are worth listing. Buyers like points of difference that a chain does not have.

The records a buyer will ask for

Expect requests for business tax returns, monthly profit and loss statements, sales tax filings and the point of sale reports by category. A buyer will compare the sales tax numbers with the books and the returns, and any gap will draw questions. They will ask for the license and all renewals, the compliance history, the lease, the inventory records, the vendor accounts and the payroll records.

Cash handling gets attention in this trade. A store that takes a lot of cash and does not record all of it will have returns that understate earnings, and a buyer cannot pay for income they cannot verify. Our post on add-backs explains what a buyer will and will not accept as an adjustment.

What has to transfer

The license is the main item, and the lease is the next. A landlord must consent to the assignment, and a lender will want a lease term long enough to cover the loan. See the lease as part of the deal for how that goes. Besides these, the point of sale contract, the walk-in cooler and refrigeration equipment, the security system, the signs, any lottery or tobacco permits, the sales tax account and the insurance all need a plan. Employees who hold server or seller permits will need those in order.

What tends to sink a sale

Deals fail on the license more than anything else. A buyer with a problem in their background, a slow review, a protest from a neighbor or a missing document can push closing out by months. Other causes are a lease that cannot be extended, a gap between the inventory count and the books, unpaid distributor balances, and income that the returns do not show.

How to prepare

Know your license inside and out. Check that renewals are current and your compliance record is clean. Keep inventory tight and records accurate. Run every sale through the register. Ask your landlord about renewal terms. Get your distributors' terms in writing.

At Business Advisors of America we start with a valuation based on your numbers, prepare the materials buyers and lenders will want, and screen buyers with the licensing process in mind. If you want to read more on selling a liquor, wine or beer store, the sub-industry page is a place to start.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.