Liquor Store Business Plan

This article provides tips on how to develop a professional liquor store business plan. In particular, it focuses on "cost of goods sold."

Cost of goods sold (COGS) for a liquor store is the total price you paid to all suppliers for liquor and other products that are sold over a certain time period. This is a key number for your business plan, and is shown on your financial statements as the topmost expense on the income statement. COGS should be a relatively stable percentage of revenue if you apply the same markup to all items you sell. For example, if you apply a 50% markup (selling a $10 bottle of wine for $15), COGS should be 67% of revenue. A standard markup won't always work (you won't want to sell a bottle for $17.34), so other methods are generally used.

Calculating COGS

A standard method to calculate COGS for a given period is to take the value of beginning inventory (the price your store paid for all of the current inventory), add the price of purchases to suppliers made during that time period, and subtract the ending inventory value. The resulting number should be, literally, the cost of the goods you sold during the period.

Shrinkage

Discrepancies between COGS as calculated through this method and the supplier price of the items that are reported as sold by the register or POS system are lumped under the term shrinkage. Shrinkage includes loss of inventory due to employee theft, shoplifting, damage of items while in the store, administrative errors, and spoilage of perishable goods. Spoilage may not be much of a concern in a liquor store, and if counting errors and in-store damage can be ruled out, then significant shrinkage may mean a problem with theft and the need for better employee controls or store security.

Inventory Method

The success of these calculations all hinge on having a consistent and proper inventory method. To simplify the process of taking inventory, inventory controls should be instituted. Storage space should be locked and the keys in the hands of the owner or manager. Whenever bottles and cases must be removed from this storage to be put in display, a register of this transaction should be kept. In this way, the periodic inventory process does not require a recount of items in the secure storage area. To reduce counting errors when taking inventory, count items in the same order each time and use a standard form or worksheet to note items. To make the process faster, the worksheet should be organized in the same order as items on display, or even in a visual representation of the display shelves. Taking care to have a standard inventory method, carried out by the same person each time, can reduce errors and the waste of time associated with double-checking inventory.

Want more tips? Here's a related article: How to Open a Store.

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