The off-licence trade has had a challenging two decades, more because of supermarkets encroaching into the convenience segment than the slight decline in per capita consumption.
Nevertheless, there are several good reasons to be bullish about your chances of finding a buyer for your off-licence – so long as your asking price is realistic.
Demand for alcoholic drinks remains enormous and fairly recession-proof for a start. It’s even pandemic-proof, after being designated an essential business during the nationwide Covid-19 lockdown and benefitting from the total migration of alcohol consumption from pubs and restaurants to the home.
Furthermore, the pool of potential buyers is not limited by a requirement for specialist qualifications, although buyers will need to pass background checks in order to secure alcohol licences.
Why you’re selling your off-licence
The first step to selling any business is deciding when to exit. Your decision might be driven by commercial factors – say, if a Tesco Express is opening up nearby soon – or personal factors such as a desire to retire or buy a business in another sector. It could be a combination of both.
Your reasons for selling, which could make you keen for a quick sale or reflect the off-licence’s declining fortunes, can make a big difference to how quickly you find a buyer and the sale price you achieve.
Business transfer agents
Once you’ve decided to put your business on the market, your next decision is whether to appoint a business transfer agent. Accountants, solicitors and business transfer agents can help you with various parts of the process, including finding and negotiating with the buyer, and handling various legalities and paperwork.
Providing they’re competent and, ideally, have experience of selling off-licences or at least similar retailers, a professional expert’s experience and objectivity will improve your chances of finding a buyer and maximising your return.
You need to put together a sales memorandum, effectively a brochure that helps the buyer decide whether your business fits their criteria. This includes information such as what running the business involves, whether it’s freehold or leasehold, and your reasons for selling, among other things.
However, sensitive financial and other information is generally only disclosed once you’ve found a serious buyer and they’ve signed a confidentiality agreement.
Your advisor can help you provide paperwork around:
- Profit and loss statements
- Asset valuations
- Liabilities and debts
- Staff contracts
- Property deeds or lease documents
- Financial forecasts for cash flow, sales and profits
Even if you don’t use a business transfer agent for the rest of the process, it’s wise to at least appoint a business valuation expert to suggest an asking price. Their valuation will take into account the value of the property or lease, and the value of the fixtures, fittings and stock.
A ratio will likely also be applied to previous earnings based on the favourability of other factors – a high footfall area with comparatively little competition would attract a higher multiple, for instance. However, they might also use the sale price of other recently sold off-licences as a benchmark.
Establishing both a price and how the buyer will finance the deal, negotiations will be easier or harder depending on the size of the gap between your valuation and that of the buyer. Whether you’re willing to meet them halfway or even closer to their valuation depends on various factors.
How compelling are the reasons given for their offer? For instance, if they point to the aforementioned nearby Tesco Express in the pipeline as justification for lowering the profit multiplier, they might have a point.
And how urgently do you want to sell? If you’re in no rush and you feel they’re undervaluing your business, then you may decide to decline the offer.
However, initial negotiations only result in non-binding ‘heads of terms’. Buying a business is a hugely risky, expensive undertaking. As such, buyers will want to exhaustively scrutinise your premises, paperwork and trading history before they conclude the purchase.
It’s ethically and commercially wise to be transparent about its pros and cons. If you try to conceal something negative and it emerges during due diligence, don’t be surprised if the buyer abandons the deal.
Depending on how due diligence unfolds, the buyer will agree to agree to the previously agreed terms, try to renegotiate more favourable terms, or even walk away from the deal altogether.
As well as drawing up a final sale agreement and overseeing the transfer of the lease and assets, they will have to arrange with the local council to transfer the premises alcohol licence and obtain a personal alcohol licence.
The steps to selling an off-licence are similar to any other retailer, or even small business, so it’s worth reading more generally on how to sell a business.