Many industries are often described as having “unique” challenges. This typically refers to financial dilemmas that contradict the seemingly universal laws of running a successful business. Basic rules that other businesses live by simply do not apply. A great example of one such industry is liquor, which most certainly comes with a host of unique challenges. Liquor stores cannot follow the formulas of similar businesses like retail or food service. They live in their own world and must maintain real-world expectations.
But that doesn’t mean liquor stores are deprived of extremely lucrative opportunities that could come their way at any moment. And thanks to companies like United Capital Source, liquor store business loans are available to business owners that have proven they truly know how to run such a mind-boggling business. That isn’t too say liquor stores have their share of advantages. There will always be a market for liquor stores, making them “recession-proof.” But every blessing can quickly become a curse if it isn’t managed correctly.
Inventory Management Like You’ve Never Seen
Most of the stress of running a liquor store comes from inventory. Profit margins are extremely tight for liquor stores, which must therefore focus on selling items with the highest margins. Okay, so that means you should only buy a moderate amount of inventory, right? The answer is yes, but only if the store has a solid idea of what its customers like. Fairly young liquor stores, on the other hand, might have to shell out up to $100,000 just to get a handle on demand. Especially if they are gearing up for their busiest season of the year.
That cost probably wouldn’t be so high if you weren’t buying so many high-profit items. But this is necessary because it’s entirely possible for a liquor store to sell large quantities of a low-profit item and draw barely enough revenue to cover business expenses. This is one of several reasons why it is much better for a liquor store to have less inventory than usual as opposed to more.
Focusing On High Profit Items
The value of high profit items suggests that liquor stores should capitalize on any opportunity to order them for discounted prices or promote their releases. But discounts are usually available well ahead of the items’ peak season. And since liquor stores tend to have so much money tied up in inventory at all times, they might not have the funds to purchase the required quantity of beverages and/or cover the advertising expenses associated with a launch event. United Capital Source offers working capital loans that can be accessed in a matter of days so businesses can say “yes” when approached by their distributors for opportunities of this nature.
Our liquor clients tend to favor business loans against credit card sales, a type of working capital loan that is paid back via a fixed percentage of future debit and/or credit card transactions. Very little paperwork is needed for approval and significant payments are only deducted when sales volume is high. It might take time for a new release to gain traction or for you to sell off all that inventory. But with a business loan against credit card sales, a slow month means smaller payments.
Never Deviate From A Working System
Some businesses take out working capital loans just to buy excessive inventory (multiple seasons’ worth) or pay their vendors well ahead of the due date. Both strategies can increase the likelihood of discounts and prevent delinquent payments from hurting profit margins. A liquor store could also use revolving business lines of credit to maintain a system that lets them only keep just enough inventory in stock at all times. In fact, liquor stores are sometimes recommended to turn their entire inventory nearly ten times a year. This might not be too difficult were it not for the always-probable financial curveball, like a broken refrigeration unit.
The idea of taking out a working capital loan for the sake of inventory management might seem outlandish to some. But liquor store owners know how hard it is to create an inventory system that works. Before they make purchases, liquor store owners must research the need and ROI of each item to make sure they are directly contributing to growth. It makes perfect sense for them to seek additional business funding to stay current on vendor payments or secure orders ahead of time.
Be Real: You Need Extra Funding To Move Forward
At United Capital Source, our mission to help companies grow often involves a reality check. More companies must accept that small business loans are not a “last resort” but one of the most logical ways to achieve their goals. In the case of liquor stores, their high failure rate is largely due to unrealistic expectations. Those that survive reportedly have plenty of funding behind them. You’ll be pleased to learn that joining the latter group is easier than ever. We might not be able to provide the business loan of your dreams right off the bat but we will be among your most loyal partners throughout the rest of your career.