Considering the Purchase of a Liquor Store: $2.2M Acquisition Price with $800K Cash Flow
I’m looking at a liquor store acquisition priced at $2.2 million, generating a cash flow of $800,000. The deal includes $600,000 worth of inventory across two established locations, each managed by their own manager, and an overall General Manager overseeing operations. The total workforce consists of nine employees, contributing to an annual revenue of approximately $3.8 million.
The all-in cost amounts to $2.8 million when factoring in inventory, highlighting that this figure represents the business only, without any property assets included.
This deal suggests a potential 28% ROI or a 3.5x multiple on earnings. Additionally, if I were to secure an SBA loan, the returns could significantly improve.
Coming from a real estate background where commercial properties tend to be priced around a 6% to 8% cap rate, I’m curious if I’m overlooking something essential. The return potential seems extraordinary, especially since management is already in place.
I’m open to feedback—please share your insights and any concerns using numbers and examples to guide my understanding of potential pitfalls. Thank you!
Edit: To address multiple inquiries, I’m currently awaiting the full Offering Memorandum, as this post is based solely on the listing and initial offer. I don’t yet have the complete financials, including tax returns, expenses, payroll, etc.
I’m also aware that a portion of this income may be “cash,” which presents a challenge for verifying income during my analysis. I’ll provide an update once I have more detailed figures.
2 Comments
It definitely sounds like you’re diving into an interesting opportunity! Here are some key points to consider that might help you evaluate the investment further:
Cash-Flow Accuracy: The $800k cash flow figure is essential for your ROI calculation. Ensure that this figure is adjusted for all operating expenses, including salaries, rent (if applicable), utilities, insurance, taxes, and any other recurring costs. If the majority of that income is “cash,” it can be challenging to verify and validate, and it may not be sustainable.
Inventory Valuation: The $600k in inventory is a significant part of your investment. You need to ensure that the inventory is both liquid and not consisting of slow-moving products. If demand decreases or if there’s excessive inventory buildup, it can affect your returns.
Management Structure: While having managers in place can reduce operational headaches, it could also mean that you need to ensure their performance. Check on their track record, compensation, and how they align with the business’s goals. Poor management could lead to decreased revenues and higher costs.
Market Trends: Research the liquor store market in your target area. Are sales trends increasing, stable, or declining? Consider the competitive landscape, potential regulatory changes, and consumer trends that could impact revenue.
Future Expenses: Beyond current operations, think about potential capital expenditures (CAPEX) you may incur to maintain or improve the physical locations and aspects of the business. Licensing fees, marketing expenses, and economic changes can also affect profitability.
Financing Terms: If you consider using an SBA loan, calculate the terms accurately. SBA loans can provide favorable rates, but they also come with fees and lengthy approval processes. Make sure you understand the implications on cash flow and ROI.
Liquidity & Exit Strategy: Understand your liquidity needs and how long you intend to hold the investment. You should also have a clear exit strategy, whether it’s selling the business, transferring management, or possibly converting the locations to another model (if needed).
Contingency Planning: Have a plan for unexpected downturns, such as economic recessions, supply chain disruptions, or regulatory changes. Consider how those risks might affect your cash flow and overall viability.
Due Diligence: Ensure you have access to comprehensive financial documents, including tax returns, income statements, and balance sheets. Without complete data, it will be difficult to perform a thorough analysis.
Finally, don’t hesitate to consult with industry experts or financial advisors who can provide tailored insights into this type of business investment. Good luck!
It’s great to see your enthusiasm for this potential acquisition! When evaluating a liquor store investment like this, there are several key factors to consider beyond just the initial numbers.
Firstly, while the projected ROI and cash flow appear attractive at face value, it’s essential to scrutinize the sustainability of that cash flow. Since you’re awaiting detailed financials, make sure to analyze:
– **Expense Breakdown**: Understanding the operational costs is crucial. High operating expenses could significantly impact net cash flow, so pay close attention to payroll, supply costs, and any marketing expenses.
– **Market Trends**: Liquor retail dynamics can shift based on regulatory changes or consumer preferences. Investigate local market trends and competition, and review how these factors might affect cash flow in the long term.
– **Inventory Management**: With $600K in inventory, assess how well the current management handles stock turnover and whether there are opportunities for efficiency improvements.
– **Debt Service Coverage**: If you secure an SBA loan, calculate your debt service coverage ratio (DSCR) to ensure the business can comfortably cover its debt obligations while maintaining adequate cash flow for operations and reinvestment.
It’s also worth considering the potential impact of economic downturns on discretionary spending, which could affect liquor sales. Having a contingency plan for various economic scenarios can help safeguard your investment.
Lastly, since part of the income may be “cash,” ensure that you thoroughly evaluate the financial documentation when it becomes available to confidently assess income stability.
Overall, it sounds