How to Value a Liquor Store
In recent years, the liquor store industry has experienced healthy growth over the past several years. According to IBIS World, this industry generates over $78 billion dollars per year. Moving forward, we can expect the liquor store industry to benefit from relaxed state legislation and rising disposable income. This is beneficial for individuals looking to buy, grow, or sell a liquor store. However, the liquor store industry is extremely competitive. As such, many liquor stores struggle to stay profitable. To succeed in this industry, it is vital to understand how to value a liquor store. Doing so can help you take the next steps in maximizing the value of a liquor store.
To learn how to value a liquor store, receive a business valuation. As part of a business valuation, a business appraiser helps you identify the strengths and weaknesses of a liquor store. This is beneficial whether you are buying, expanding, or selling a liquor store. Peak Business Valuation, business appraiser, works with liquor stores on a regular basis. We are happy to provide you with a business valuation for a liquor store. In addition, Peak can answer any questions you may have on valuing a liquor store. Schedule a free consultation with Peak Business Valuation below!
How to Value a Liquor Store
When determining the value of a liquor store, business appraisers at Peak Business Valuation use various approaches. This includes using the market approach and/or the income approach. The valuation analyst will use their knowledge to determine which method is best for your liquor store. Often, this involves using a combination of valuation approaches depending on the purpose of the appraisal.
Valuing a Liquor Store Using the Market Approach
The market approach is a common method for valuing a liquor store. The market approach is similar to the approach real estate appraisers use to value a house. A real estate appraiser analyzes comparable properties that recently sold on the market. This allows them to determine a fair market value of the property they are appraising. When a business appraiser uses the market approach, they compare your liquor store to similar liquor stores that recently sold. If your liquor store is a private business, they will use private transaction databases to gather information. They then determine applicable market multiples for the liquor store to determine a fair market range of value.
Multiples for a Liquor Store
When valuing a liquor store with the market approach, business appraisers use valuation multiples. These are values that compare your liquor store to financial metrics like cash flow, earnings, or sales. To determine applicable multiples for a liquor store, Peak Business Valuation uses the NAICS or SIC code. Below, we discuss the basics of valuation multiples for a liquor store.
REVENUE or SALES Multiples for a Liquor Store
- The revenue multiple measures the total amount of revenue a liquor store generates. Business appraisers apply a multiple to the store’s revenue to determine the fair market value of a liquor store.
EBITDA Multiples for Liquor Stores
- The EBITDA multiple measures the return on investment a store owner can expect to make.
SDE (Seller’s Discretionary Earnings) Multiple for a Liquor Store
- SDE multiples assess a liquor store’s cash flow by multiplying its seller’s discretionary by the multiple. This is a common multiple when valuing a liquor store.
The business appraiser determines which valuation multiple is best for your liquor store during a business appraisal. To learn more about valuation multiples, see Valuation Multiples for a Liquor Store.
Valuing a Liquor Store Using the Income Approach
The income approach is another popular method for learning how to value a liquor store. This approach analyzes risks associated with the liquor store. In the following paragraph, we share a few common risks for buying, growing, or selling a liquor store.
- Competitive: The liquor store industry is very competitive. As such, it is vital to differentiate your liquor store from competitors.
- Regulation: Alcohol laws and regulations can vary from state to state. To operate a liquor store, it is crucial to understand state legislation.
- Location: The location of a liquor store plays a crucial role in its success. To secure a prime location, consider the key markets for the liquor store industry.
- Supplier Relationships: Establishing strong supplier relationships has many benefits for a liquor store. This may include reduced expenses and increased profits.
Methods to Value a Liquor Store Using the Income Approach
There are two common valuation methods for valuing a liquor store under the income approach. The first is the capitalization of cash flow method and the second is the discounted cash flow (DCF) method. We discuss these valuation methods below.
Capitalization of Cash Flow Method
- At Peak Business Valuation, valuation analysts often use the capitalization of cash flow method to determine the value of a liquor store. This method is ideal for liquor stores with long and stable histories. When using the capitalization of cash flow method, the business appraiser estimates a reasonable measure of economic income. This period is divided by a capitalization rate. The cap rate represents an appropriate rate of return a liquor store can expect. It also assesses the risks associated with the liquor store. Some of these risks are listed above.
Discounted Cash Flow Method
- The discounted cash flow method is most suitable for liquor stores with strong financial histories. It is also ideal for liquor stores that have built reliable forecasts. The discounted cash flow method involves using 3-5 years of projections to estimate the value of future cash flows. The cash flows are then discounted using a discount rate rather than a capitalization rate. Keep in mind, this method is less common because it is limited to future cash flow estimates which can be inaccurate.
Valuation experts may use the market approach and/or the income approach when valuing a liquor store. To learn which valuation approach is best for your liquor store, receive a business valuation. During a business valuation, a business appraiser helps you understand the fair market value of a liquor store. With this information, you can begin to increase the value of liquor. This is beneficial whether you are looking to buy, grow, or sell a liquor store.
Peak Business Valuation, business appraiser, works with liquor stores across the nation. We are passionate about helping liquor stores succeed. Peak can provide you with a business appraisal for a liquor store. We can also answer any questions you may have about how to value a liquor store. Start now by scheduling a free consultation with Peak Business Valuation below!