Whenever you buy a business, you will have to refer to a complex set of dynamics and will certainly do some work. The business is composed of a series of tangible and intangible elements and while there are certain benchmarks, often quoted by those seeking to sell at a favorable price, each situation is very different. This can make it quite difficult when you are thinking about how to value a liquor store for sale, especially if you find a similar proposal nearby at a very different price. On the face of it, each appears to be somewhat similar in style, size and type of location, so why the difference?

Whenever you buy liquor store business interests, the purchase will be represented by many different assets and the seller’s position at that time will be dependent on a variety of different factors. These include the effort put into the business by the owner, marketing plans, the demographic make-up of the clients in its catchment area, focus on particular products or services, the competence and skills of the staff and so on. With this in mind, you will need to get as much information as you can, research comprehensively and ensure that your process of due diligence is in place.

Here are some of the issues you might face when contemplating the purchase of a liquor store:

* location.
* whether revenue and profits are stable and sustainable.
* the customer database and potential for expansion.
* how portable is the lease and what are the terms and conditions associated?
* population and demographics.
* road construction projects.
* employee situation – working for cash or favors, such as may be the case with family members.
* any pending threats or opportunities that could significantly impact revenues.

Bear in mind that the liquor store industry tends to want to focus on industry benchmarks and while this is fine for some outline information, you cannot rely on it. It’s certainly true to say that no two businesses are the same and a variety of focus areas are possible – premium products, beer, wine and cigarettes. Look for abnormalities or something that really jumps out at you and make sure you understand why this should be. At the end of the road, however, look at the bottom line to determine how much the business is worth to you.

When you are assessing the business financials and particularly the revenues, you must dismiss any cash sales reported by the owner unless these sales are backed up by audited accounts and are included in tax returns. It is not fair for the outgoing owner to expect to receive value for these sales if he or she has treated them as “under the counter,” especially if they have not been reported for tax purposes.

Inventory offered must be saleable and not be made up of products that are out of date or unlikely to sell. This would certainly be the case if you were presented with a stock of winter ales in the summer months.

To establish a base upon which to value and then decide to buy a business, look at net income, add owner salary, any perks, received depreciation and interest and then deduct any allocation for capital expenses. This latter item refers to any perceived payments you may have to make in the short to mid-term in relation to improvements, upgrades or necessary investments.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.