How to Assess the True Value of Your Liquor License in Pennsylvania
Ah yes, the mystery of it all. This is the question that, for years, has been dropping accountants, lawyers and licensees to their knees. What is the value of my business? How does my Pennsylvania liquor license factor in?
If you’re like many bar and restaurant owners, the answer to these questions springboards a string of hypothetical situations, like: “Well, what did I pay for the place 14 years ago? What did Joe down the street sell his for? I heard rumors that a new mall is planned to break ground three years from now, and I’m sure my license value will go up because of it. And let’s not forget that new restaurant that moved into town and added that additional liquor license to the local municipal pool.
Comments like these are some of the most common that we hear at Specialty Liquor License Brokers in Pittsburgh every day, We understand the price point and the market share. The fact is, in some cases, the value of a liquor license can be a real mystery. There are some municipalities where a license may not have changed hands for ten years or more. So how are you able to determine what it is worth?
Supply and Demand
Supply and demand is the good old American theory that says, ”If they want it badly enough, they’ll pay for it.” In other words, if you have the only one and a lot of people want it, then you can sell it for a bundle. On the flip side, if there are many available and only one person wants it, you will get a lot less for it because the others will keep lowering their price until theirs is sold.
Then, when you combine this theory of supply and demand with timing, you can see how explosive the liquor license market can be. Let me give you an example: A few years ago, a developer was contemplating building a mall. At that time, there was only one license available. It was worth well over $70,000. Then, all of a sudden, there was a rush of large, deep-pocketed, national chain tenants from out of town who wanted to be in the new development. Specialty Liquor License Brokers received offers beyond belief for the times. It was like an auction at Sotheby’s; 100,125,150, 200, do I hear 225?. After the dust settled, the license sold for an astounding $235,000!
Of course, as you know, “if it sounds too good to be true, it still might be true,” and low and behold, the mall deal fell through.
However, we can learn an important lesson from this example. The key questions to ask yourself when trying to assess the true value of your PA liquor license are:
- Who are the buyers? Change to How many other licenses are available? Where’s the market at?
- Where are they from? Change to Is the buyer qualified?
- Where do they want to be located? Change to Does the location meet the PLCB regulation to be qualified? I.e. will there be any challenges with the proposed location,
- Are there neighboring licensees with this issue?
- Will their business and their money meet the LCB licensing requirements?
Challenge is there isn’t a list like the Zillow where you can find listings, you need a professional with the resources. (Put a link. Call to action to call in)
The answers to these questions will decide the most important aspects of a license sale. Next, are they a national chain? Are they from the area? If they are, they have a grip on license values. If not, they could be used to negate the supply and demand theory and pay substantially more than market value or even lose the value.
Are there restrictive institutions neighborhood groups that would oppose another business establishment opening up within 300 feet from their proposed location, which could result in the denial of the application? These are all key pieces of information that can either drive the value of your PA liquor license way up, or bring it down.
The Buyer’s End
For the buyer, however, there is another entirely different set of questions that must be answered correctly if the sale is ever going to close, regardless of what the seller will accept:
- Is the license able to be transferred?
- Has it been renewed?
- Can their money be legitimized?
- Will they meet the residency requirements?
- Are there any citations pending or penalties that are following the license to the buyer? Keep in mind that suspensions follow the license, so if it is not converted by the seller, it must be served by the buyer after approval.
- Are they current with their taxes?
- Does the license have a CLA (Conditional licenses agreement)
- Are their liens against the license? Any citations or pending citations?
The fact is, unless you are in the market every day like we here at Specialty are, and are able to have your finger on the pulse of the PA liquor license market, the amount you want for your license is nothing more than an unrealistic number that you probably won’t get. Here at Specialty, we deal in these matters on a daily basis for over thirty years and therefore know how to navigate the market and make your sale or purchase work.
If you’d like to talk to one of our experienced Pittsburgh license brokers, please feel free to contact us online or give us a call at (412) 369-1555. We’re here to help you get into or out of the bar and restaurant industry!