The $1.4M Liquor Store That Prints $500K/Year

0:00Hello, ladies and gentlemen, boys and girls, and welcome back to another episode of Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. And today you're getting kind of a twofer because we intended to talk about a liquor store, but we got probably five to 10 minutes in the beginning about how to think about asking prices when you're buying a business and whether or not they are real or totally made up. So I hope you enjoyed it at the beginning. And then we've got a really cool deal today because it's kind of an old school classic.

0:33It is a liquor store in Washington, DC, and the multiple is reasonable. It's been around for 80 years. This deal, to use a phrase from Mills who wasn't on today, but to crib his phrase, this deal really pencils. So if you're interested in liquor stores or you want to harken back to like the good old days of SMB buying when it felt like you could buy anything in the world for 3X and make your money back in under a year, this is one of those deals. So without further ado, I hope you enjoy this episode of Acquisitions Anonymous.

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2:02So you can check it out and learn more at verivend.com. V-E-R-I-V-E-N-D.com. So we just press record and I was telling everybody that I made all the business brokers on Twitter mad at me yesterday because I tweeted that asking prices on businesses are a joke and that when you hire an investment bank to run your business or to sell your business, they just run an auction and the business is worth what the market tells you it's worth. But the only segment of the market that lists asking prices on business is small businesses. And then I wrote the thing that made everyone mad at me, which is probably because half the brokers are also realtors.

2:44but and all and unfortunately all of like the the business brokers that i know and like on twitter thought i meant them but i did not of course there are plenty of amazing business brokers out there but there are also 50 of business brokers that are also realtors uh and and we're back to the the asking price on the business is the mortgage balance on my house trope that we say all the time so everybody's all mad at me in the comments so after this i have to log back on to ask and apologize to people. You have to make amends now. Okay.

3:15Acquisitions Anonymous Hosts:Somehow I got tagged in this thread. I was like, how did I just catch a stray? What's going on here? Yeah. Well, yeah. I mean, we all catch strays together now because of the pot. So when one of us gets barbecued, we all do. But I stand by the point, by the way, that asking prices on businesses are made up and you should bid whatever you think the business is worth. as we always talk about in this podcast. Like, what do we think this business is worth? I had two interesting replies. One person said that the reason that, you know, quote unquote, real investment banks don't list prices is they said, when I sold my business, I had like five bids at 5 million and the winning bid was 7 million.

4:00And because you never know, like who's really going to like it, right? And then, so the other person was trying to make points about debt service coverage ratios, et cetera, which is missing my point because, of course, there are prices at which deals pencil using SBA loans. So this person wrote, there's a maximum price any business can sell for. And I was like, well, yeah, but you don't put that on the listing. You're never going to sell the business for more than you listed for. And I would argue with that point, as a lender, there's a maximum loan amount you can get, But you can pay whatever more you want above that in equity if you think the value is there.

4:39So, you know, even that doesn't determine the value. Well, and you can, in a business purchase, I mean, I'm preaching to the choir here, but it is not like buying real estate.

4:52Acquisitions Anonymous Hosts:Like real estate, there's five or six levers to pull that can change valuation and how much it ends up costing in the end. there's a thousand of them in business uh in these transactions from everything from how working capital is computed to what the seller gets paid in terms of earn out or consulting agreements afterwards like there's just or how much of it is contingent on based on growth like you know i i could value any business in a billion dollars it's just yeah the term the terms are going to be very interesting one billion dollars if we achieve one billion dollars in revenue in the next two years.

5:27Can I add my other lender pet peeve to this discussion? The SBA requires a business valuation, just like as if it's an appraisal on real estate. And I just kind of think it's a waste of time because just to your point, the value is whatever it is to the buyer and everybody, there could be five different buyers who have five different values that make sense. And so having a third party come along and say, this is the value of the business. I feel like it's just, it's, it's bringing a real estate mentality into this. Even the SBA does it. So yeah, business brokers do it. Yeah. Buyers do it. Everybody does it, but don't bring a real estate mentality into business buying.

6:07It's, it doesn't fit. It doesn't make sense.

6:10Acquisitions Anonymous Hosts:My favorite internet argument amongst all the internet arguments, I, I, I rarely wake up one. All right. It's going to be for today. It is, but it's these people that come in and basically believe that a business appraisal or property appraisals are an exact science. And I've had people be like, oh yeah, property appraisals are an exact science. And if you spend 10 minutes with an appraiser, they will come up with 85 different values generated from 85 valid ways to value a property. It is such a science of hokum that you could have for a property. I've seen appraisers come in, you get three different appraisers on something, you have one of them will be double the other ones and another one will be triple the other ones.

7:01Acquisitions Anonymous Hosts:And it's just such a, it's even worse for businesses. Like the only valuation that truly matters is if somebody's writing a check. Every other one is just such hokum. That's my argument. I get into people over and over again. They just. Amen, Michael. I really want to continue pulling that thread and we can talk on this whole episode about how appraisals of all stripes are absurd, but I am trying to buy a house. The seller got an appraisal. Is using that to justify what the house is worth? The appraiser excluded nearly half of the square footage of several of the best comps in the neighborhood because they're technically below grade.

7:37So the appraiser considered them to be basements. These basements are full of light, have bedrooms and walk out onto pool decks because the home is built on a slope. So the point is appraisers are BS. And I was going to say also, Michael, at least real estate is relatively fungible, right? Like you can probably have a lot of good comps for a three bedroom, two bedroom, bathroom house in that neighborhood, probably a 10 good comps, right? You're gonna have a sense where the market is in businesses. Like, yes, there are some, okay. If it's a plumbing business, like maybe, and the people argue with me, if like, if there's a plumbing business, we know what it's worth.

8:14Really? Have you seen the varying revenue qualities of plumbing businesses? I mean, listen to this podcast for a couple episodes. Like, what if it's mostly commercial business? What if it's mostly residential business? What if it's mostly new build? What if it's mostly maintenance, right? But businesses are not fungible. If you've seen one business, you've seen one business. And so the idea of kind of appraising something, especially in a business, at least in real estate, the lender cares because they want to know they can liquidate the asset and get their money back. The SBA is not liquidating a business to get their money back.

8:45No, that's why I think they started out thinking that's what it was and then maybe they just kept it. I've had business appraisers for SBA loans call me and say, this one's coming in low. And they say for this kind of business, and they'll say the industry, and I'll say, who told you it was that? That's not even what the industry is. So you've got a third party appraiser who doesn't even know not nearly enough about the deal or the business to be in a position to give a valuation. So it's just don't put any stock in those reports.

9:15Acquisitions Anonymous Hosts:The moment that will radicalize you on appraisers is the following. You're in business for a few years and you're getting an appraisal on something and the appraiser calls you and you realize three minutes in, what they're trying to do is find out what your offer price is or what the listing price is or what the contract price is so they can figure out how to solve for that. Like I have had that happen so many times where the appraiser calls and I'm like, oh, he wants to know what the correct answer is here. Yes, the correct answer is what we did, what we're paying for it. Thank you. But that actually, Michael, is the correct answer because that's the market clearing price.

9:54Some jackass is willing to pay it. It's me. Right. Exactly to your point. Yep. Yeah. Which is why it's ridiculous.

10:02Acquisitions Anonymous Hosts:All right. So the lesson of all this is the internet is boring unless you're getting on fights. That's why X exists, man. It's to make the internet interesting. Right. Well, all right. Ready for the segue? Yeah, yeah. Speaking of things that get you into fights, we're looking at a liquor store for sale today. Uh-oh. And it's Friday. And it's Friday. And it is still before noon, so I swear we have not been drinking. We have not. But this is, we're on a trans world kick for the past couple episodes. So this is another trans world deal. This is an 80-year-old SBA-approved profitable corner, so many adjectives, liquor business in Northwest Washington, D.C.

10:48So this is a your nation's capital, get the leaders of this country drunk on a daily basis. Sales of$2 million. SDE of$500 ,000. FF &E of$200K. not sure what shelving or whatever you need. I don't know why you got 200k of FF and eight liquor store. Maybe it's inventory. Uh, the rent is 9 ,500 bucks a month. It's been around since 1941. The seller is retiring. There are two employees and again, SD of 500, they're asking 1.4 million. So a little bit under three X. Um, so I'll tell you a little bit more about it. This is it's semi absentee and operationally efficient on a great corner with low rent, with a long-term lease.

11:35It says this growing business is located on a corner of a super busy major Northwest DC Avenue. And the business has over seven decades of successful history and will continue that rich tradition for many generations to come. This long established wines and liquors business is a great gemstone and a course of constant income that has steadily been increasing over years owned by the present owner from 2002. So this guy bought it 25 years ago from somebody who had previously operated. So this is a longtime business that has changed hands. Like a good whiskey, this business has aged with character.

12:08Price, total customer satisfaction, reputation, and depth of excellent relationships with their vendors and suppliers. The owner has diversified in other ventures with his next generation, such as multifamily real estate and other business outside of DC and sincerely wants to leave his legacy in good hands to continue serving the marketplace with love and affection to keep growing intact into the future. It's a well-known and great location. The store is beautifully built with no expense spared, plenty of parking, professionally operated by a well-trained staff. I mean, what more could you want?

12:39And by the way, the American dream, create cashflow in business and diversify into real estate. This guy has done it. 2024 sales were up almost 10 % organically and tracking to increase 11 % to 14 % in 2025 per the projections of the owner, thanks to their customer's loyalty and great prices and a variety of products. Serious and bona fide buyers only. Ideal opportunity for an experienced industry buyer looking to add another location, a store in a prime location. Net margins 31%, steadily growing. It is, I believe they put, liquors are 57 % and beers are 43%, beers and wines, I think that's what this means.

13:25there are$290 ,000 of inventory not included in the asking price. And it says fast moving variety, which I suppose matters of the liquor store because you have all these old wines that are like super rare and never move. But 290K of additional inventory. So that takes you from like 1.5 to like 1.75. So we're still just a little bit over 3X, including inventory. They have a five years remaining left on their lease plus five year option. So you got 10 years left on your lease at 9 ,500 bucks a month, which means your total annual rent is a little over a hundred grand. Not bad. Well-established, large residential areas, commercial and tourists, 90 % of the business comes from established local retail customers.

14:08Whoa. This is verbatim, parentheses, white color and middle to high income, perhaps capita income groups. So we're profiling the customers pretty aggressively. Not color, not color. White color, not color. White color, that's what I'm saying. That's what it says here in the listing. It does. Semi-adventory owner, surrounded by famous, well-established, high-income communities, globally known office buildings, including the International Monetary Fund, the World Bank, International Finance Corporation, U.S. Chamber of Commerce, leading hotel brands, and hyperactive traffic of tourists and educated professionals throughout the area, blah, blah, blah.

14:45I have to interrupt right now.

14:47Acquisitions Anonymous Hosts:Okay. Number one, we're 440 episodes in. This is the first time we've had a racist liquor store. Like, great job, guys. That's a joke, by the way. It's clearly a typo. It's a joke. We've had four or five racist liquor stores. But number two, like the first thing I look at from all the surrounding businesses, work at the World Bank and all this kind of stuff, all those places they listed are the types of places. If I work there, I would have a heavy drinking problem. So this is a big favor in front of the – It's up 15 % this year. Just look at it. Let me go. You got a new president and people start drinking.

15:28Acquisitions Anonymous Hosts:You know how there's this thing where people watch the receipts and the traffic at like the Domino's Pizza outside the Pentagon to see if they can predict – The pizza indicator. Yeah, it's crazy. What do you think this indicates? The liquor indicator outside of the International Monetary Fund? I don't know. Yeah. That could be a side, that could be another revenue channel for this business. If you sell the data, selling the data. Yeah. Yeah. Yeah. All right. So that's all I got. What do you guys think? This is a unique one. Uh, what's the deal with the real estate? Did they say that? It's least there's 10 years left on their, on their lease.

16:02And it's low rent. I mean, it was like$9 ,500 a month for a good, for a good corner. I mean, that is low. Yeah. Yeah.

16:09Acquisitions Anonymous Hosts:Uh, who owns the lease? Does it say it's a Skyrim? It doesn't say. I get the sense it's, I don't know, but like this guy's been in it for 25 years and he bought it from the prior owner and this is DC and it's a good corner. I bet that real estate is not turning over. It's probably a third party landlord. And if I had to guess. Yeah. I mean, where these liquor stores get really interesting is, you know, when you own the real estate, eventually it can give you a competitive advantage where other folks can't come in and compete with you because rents are just so high. But you own the real estate.

16:41Acquisitions Anonymous Hosts:So you get a kind of monopoly on liquor in that area. So 10 years is good. At least it's not like three. No, 10 years is good. I mean, you're going to pay 3x cash flow for this business. So like all the time we complain about how you're going to get screwed by paying a multiple for a business with a short lease. But Heather, this has got a 10-year lease. We can use an SBA loan. You can use an SBA loan and SBA loans love liquor stores. As long as I've been in the business of SBA lending, I've seen lots and lots of liquor store deals. I personally have never done that or I haven't done one in a long time.

17:16It's just kind of a different type of client that wants to buy these because it is this one says semi absentee, but you really have to be there. This is the kind of business that someone who's going to be there overseeing the employees. I mean, it can be a dangerous business for the employees. It's retail. It's alcohol. It's highly regulated. So it's usually, I mean, in the area where I live, it is usually an immigrant, you know, would be interested in buying these kinds of businesses. That's what I've seen the most of. And they make great businesses. And as long as you can get the liquor license to transfer.

17:54They didn't say anything about that. and every state and jurisdiction is different. This is actually in D.C. proper, so it's whatever the liquor license rules are there, but I would assume the license is included in this price. I don't think they said that. They did kind of break out inventory and whatnot, but I would assume, and that would be, I guess, the first question I would ask is, is the license included and what does the transfer process look like for a buyer? How long does it take? It's usually fairly bureaucratic what you have to do to transfer a liquor license. And you can sell just the license in some states.

18:33You know, like if you had a restaurant and you were no longer going to be serving liquor or whatever, or the restaurant went out of business, the license itself usually sort of has an inherent value because they limit the number of licenses that they issue in most places. But you have to find out what the story is here. I like the multiple. I hate that we always have to add and subtract here. They give you a price and then tell you plus inventory. I wish we could normalize just a price that includes what you need to run the business, such as inventory. Like a networking capital peg, Heather? And a networking capital peg, yes.

19:09Thank you. I've been on my high horse about working capital lately. But, yeah, it seems like a good all-in price or effective multiple is pretty good here, still just over three. But I think this has to go to a buyer that is willing to be in the store every day. You know, we're pretty close to that because that's what it takes to run these kinds of businesses successfully. Let me put an asterisk on that. The type of buyer who is willing to go to the store on any day. There you go. Okay. I agree. Right. Because they have two employees and it does say semi-absentee. Right. So I don't think the owner is actually behind the counter in this thing.

19:49I absolutely believe he's there a couple of days a week. Yeah. 100%. And you've got to trust those employees because there's cash too. Yes. Yeah. And the expensive inventory also. Very expensive. Yeah. Right. That's right. Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So CapitalPad is a marketplace for acquisition entrepreneurs, that is people who want to buy a business and need capital, to list their deals and solicit capital from other people who want to invest in acquisition deals.

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21:32Acquisitions Anonymous Hosts:for this listing is they're up 10 year over year in sales and if you're following the liquor market and the alcohol consumption market, it is going the other direction. You're seeing a retrenchment in people drinking beer, especially craft beers. And a lot of people are trading up or sideways, depending on how you look at it, to do THC as opposed to alcohol. Young people, I've done some videos on alcohol consumption. The comments from every single person under 30 says exactly the following thing. alcohol is poison you shouldn't do it pot is better they every single one of them believes it and we're going to try not to deviate into all the ways pot is bad for your brain but like really bad i was just really excited about this you know what people do people should do have a coffee and eat a salad that's what i think there you go why do we why do we need to be putting all these chemicals in our body anyway but i think it's i mean it's a good time for this listing that even in face of those headwinds they're up 10 now it looks like the target market around here is not a bunch of 25-year-olds trying to buy Mad Dog 2020.

22:41Acquisitions Anonymous Hosts:I may be dating myself by talking about that. Our Boone's Farm. Boone's Farm, yeah. Am I right, Heather? Yep, yep. Girdly anecdote for you. My wife did ask me, because she had a white claw. I was like, girl, you're going to have to stop this. Anyway, she was drinking a white claw at a social event. She's like, what was the name of that beverage that was like the first malted clear beverage? I was like, oh yeah, Zima. That was it. Oh yeah. I'll go all the way back to California coolers. You probably don't even know where those are. They're horrible. They're gone now. They're so sugary. It's nasty.