Valuation Multiples for a Liquor Store
The liquor store industry includes businesses engaged in retailing packaged alcoholic beverages including beer, wine, and liquor. There are a little over 45,500 liquor stores in the United States. Over the last five years, this industry has seen growth as the per capita disposable income increased. With increased disposable income, shoppers have turned to premium products with higher price tags and hence increased industry revenues. Combined annual revenues have been growing at about 1.7% over the last five years to nearly $63.2 billion in 2021. Here is a quick summary of what valuation multiples look like for a liquor store. In addition, be sure to also check out our articles on Valuing a Liquor Store and Value Drivers of a Liquor Store.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
Liquor stores are seeing increased demand, especially during the recent pandemic. As such, it may be a great time to buy or sell a liquor store. The first step in that process is understanding the value of a liquor store. Get started with Peak Business Valuation, business appraiser California, by scheduling your free consultation.
What is a Valuation Multiple?
One of the ways a valuation expert values a liquor store is by using valuation multiples. A valuation multiple is like a ratio. A ratio compares two things to each other. For instance, one of the more common ratios in valuation is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings of the business, with the implied value of the company. A valuation expert uses the multiple of other similar liquor stores that have recently sold on the open market and applies the multiple to your liquor store to get a range of value.
For example, if a company has $350,000 in SDE, and receives a 3.2x SDE multiple, then the business would have an implied value of $1,120,000. ($350,000 times 3.2) On the contrary, a 3.6x multiple would imply the value of the company would be $1,260,000. ($350,000 times 3.6)
Peak Business Valuation, business appraiser California, has worked with numerous liquor stores that were looking to sell or expand their business. As we have worked with multiple liquor stores, we have come to recognize some of the common valuation multiples a liquor store transacts at and is valued at. The two most common multiples to look at for liquor stores include SDE and EBITDA multiples. A multiple of REV (revenue) is not used as often as cash flow multiples.
Average SDE Multiple range in 2020: 2.90x-3.68x
According to our data, in 2020 liquor stores transacted between a 2.9-3.68x average SDE multiple. To derive an implied value of a business, apply the multiple by the most recent 12-month period revenue. The calculation is as follows:
SDE X Multiple = Value of the Business
For instance, if a liquor store generates $400,000 in sellers’ discretionary earnings and transacts at a 3.1x multiple, then the business value is worth approximately $1,240,000.
$400,000 X 3.1x = $1,240,000
Seller’s discretionary earnings is a common cash flow multiple used in valuing small business transactions. It starts by computing the company’s operating profit and adding back potential expenses the new owner may not incur. These expenses may include the owner’s compensation, the owner’s personal expenses, and other expenses such as non-recurring or non-related business items.
Average EBITDA Multiple range in 2020: 3.85x-4.78x
The average EBITDA multiples for liquor stores in 2020 range between 3.85-4.78x. Applying this multiple to EBITDA derives an implied value of the liquor store. The calculation is as follows:
EBITDA X Multiple = Value of the Business
For example, a liquor store has an EBITDA of $250,000 and transacts at an EBITDA multiple of 3.92x. Using the above metrics, the financial advisory firm is worth approximately $980,000.
$250,000 X 3.92x = $980,000
The EBITDA multiple measures a company’s return on investment (ROI). This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses.
When looking at valuation multiples, keep in mind there are many factors that may impact the business and the multiple used to value that business. Therefore, Peak Business Valuation would love to talk with you more about the factors that may impact the value of your liquor store.
Peak Business Valuation, business appraiser California, loves working with small business owners to maximize the value of their liquor store. We focus on providing valuable information to help you grow, sell, or buy a liquor store. Peak works on valuations for liquor stores monthly. Questions are always welcome! Get started today by scheduling your free consultation below!
Schedule Your Free Consultation Today!