How do I start a Liquor Business?
Before you jump in and start spending money on your new venture, stop and read these few pointers that may save you money and loads of frustration.
The question is often asked:
Where do I start?
You start with your premises. You need a premises before you can even apply for a Liquor License.
Do not start spending money on renovating the existing building or start building a new building or sign a lease contract on the building before you have cleared the following:
- Visit your local Municipality’s Town Planning or Land Use department and confirm with them that the premises or stand that you want to use is suitable for the specific Liquor License (i.e. tavern, liquor store, restaurant, pub etc.). Some stands have a Land Use Right for residential, commercial, industrial and other.
Remember that a stand zoned for business may not be suitable for entertainment /amusement. (This includes a Tavern or Night Club License). A stand zoned for residential will not allow a Liquor License unless approved by the Municipality. It is no use to say that there are other businesses in the vicinity of your stand and therefore it should be acceptable. Each stand is zone individually.
(If your stand is in a rural area you need an official letter from your traditional leader confirming that you may apply for a specific Liquor License on your stand).
- Request a Zoning certificate from the Municipality on the stand that you intend to use. Your Liquor License Consultant must be convinced that the zoning is correct. In Gauteng you need a Local Authority Approval (A letter confirming you may apply) for a Tavern. Pub, Liquor Store and Night club in addition to the zoning certificate.
- Start planning your shop. Decide on your target market. (High income, Medium income or Low income group). Your product that you will sell depends on this decision as well as the outlay and image of your shop.
For a Liquor Store you may decide on a self service or service counter shop. This depends on safety and security in the area. A self service Liquor store will require much more starting- up stock than a service counter shop.
Decide on the minimum equipment that you require for a shop conforming to your planned target market. Source suppliers and secure prices on the equipment. Important is a good Point Of Sale System which is linked to the Cash register and computer.
Establish the suitability of the electrical distribution board of the shop. That is, can the distribution board handle the load of all your equipment without overload trip outs?
Pay attention to the condition and suitability of the shop’s floor. If it needs replacement, estimate the cost.
Determine the security cost such as burglar bars, safety doors, alarm system, armed response and new locks for the shop (Don’t use the old locks. You don’t know how many keys are floating around.)
Design you signwriting and promotional material. Signwriting must be professional. Take care that the sign can at least be read by someone traveling at sixty kilometers an hour. The sign must be clear and eye catching. Do not write too much on the sign. All other material must be professional and neat.
The lighting of the shop is important. It must suit the required ambiance of the type of business you intend to operate. A dark Liquor store does not contribute to the image of an upmarket Liquor Store or any Liquor Store for that matter.
Ascertain if the premises allow for suitable parking in terms of quantity and safety.
- Decide on your pricing strategy. Visit opposition shops and determine their prices. Find out from suppliers the cost price of your products. Decide on a price mark up percentage. It is not a good strategy to be the cheapest in town.
- Decide on your product strategy. The type of products you will sell depends on your target market’s income. Establish the fast moving stock and list them. Unfortunately you can not only stock fast moving stock. Some stock should be kept as a service to customers seeking alternative products. Your shop should be well stocked and must look successful.
- Negotiate a Lease Contract. If you are not the owner of the property you require a lease contract between you and the landlord. Be careful when signing the lease contract. Read the conditions very careful, especially with regards to the following”
1. Escalation clause. This means the amount the rent will increase after every year. An annual escalation of 8% is acceptable in today’s economy.
2. Right to renew. The renewal clause gives you the right to renew the contract after the expiry of the lease. There should be a % increase or a rand figure of the first year’s renewal with an escalation clause for every year thereafter until the end of the new contract. The applicant is welcome to contact the writer for more information.
3. The monthly payments stipulated on the lease contract can be inflated by the lessor’s on costs such as administration cost, security cost, cleaning cost, rates and taxes and other. Remember the 10% guideline. If your rent is R15 000 your budgeted turnover should be R150 000 for a retail shop. If you don’t expect that turnover be aware.
4. Insurance cost. Some lease contracts requires the lessee to insure for shop front windows and other breakages.
- Contact a reputable Liquor License Consultant to give you a quote clearly confirming all cost. Make sure you know what is included and what is excluded in the quotation. Apply as soon as possible because a Liquor License Application can take a long time. (4-6 months or longer) You can apply on an existing premises or on a stand on which there is no building yet.
- Compile a Suppliers List with alternative suppliers. Your purchases can influence your profit margins dramatically. Shop around for better deals. Your relationship with your suppliers is critical. Try to line up alternative suppliers where possible.
- Decide on an Employment Strategy. Many successful businesses have failed because of employees. Take note of the following:
1. Do not employ anybody to do the work that you can do.
2. Work out your budget and cash flow before you employ anybody. It is not fair to the employee is you inform them soon after you employed them that you can not afford them.
3. Do not trust anybody. Ensure strict financial an stock control. Do your own buying and stock control. Ensure that your employees have no access to the Point Of Sale systems manager’s files.
4. Follow up the applicants previous employees and get a reference.
5. Follow up the applicant’s qualifications.
- Work out a Budget. Without a Budget you can fail before you opened your doors. Remember to budget for the actual and hidden cost which are listed but not limited to the following:
1. Cost of the Liquor License Application
2. Cost of your first payment to the Liquor Board on approval of the Liquor License.
3. Rent deposit.
4. First months rent in advance.
5. Electricity deposit.
6. Painting and renovating the shop.
7. Burglar bars and safety gates.
8. Alarm system and camera system.
10. Stationary, printing etc.
11. Cost of furniture and fittings plus installation.
12. Cost of electrical installation.
13. Cost of Point of Sale system and software.
15. Trading License.
16. Computers and software.
17. Employment contracts.
18. Cleaning material and equipment.
20. Cost of rent while waiting for the Liquor License.
- Remember the following when opening: (Some of the following items may be applicable to you).
1. Sign the lease agreement.
2. Apply for the Liquor License.
3. Paint and renovating the shop.
4. Install the alarm system
5. Install the burglar bars and safety gates.
6. Decide on the lay-out of the business.
7. Order and install the equipment, fixtures and fittings.
8. Order and install the signwriting.
9. Register with the Receiver of Revenue such as Income Tax, Employees tax (PAYE), Value-added tax (VAT) if applicable, Unemployment Insurance Fund (U.I.F.)
10. Register with the Health department at your local Municipality.
11. Apply for a Business License (if applicable) at your local Municipality.
12. Draw up employment contracts.
13. Draw up confidentiality agreements with employees, if required.
14. Draw up restraint of trade agreements with employees, if required.
15. Draw up disciplinary procedures for the employees.
16. Appoint a registered accountant.
17. Open a bank account.
18. Decide on the legal entity of the business such as a Sole Proprietor, Company (Register the Company) or partnership (Draw up a partnership agreement).
19. Take out insurance on the assets of the business.
20. Order Point of Sale system and train to use it correctly.
21. Draw up a Menu and recipes if applicable.
22. Train staff.
23. Order stock.
24. Order packing materials.
25. Order stationary and marketing materials (Menu’s)
26. Order Telkom telephone line.
27. Order credit/debit card machine.
28. Order staff uniforms if applicable.
29. If your business is in Gauteng order a sign with letter 50cm high for the front door which displays the following:
Name of Business.
Type of Liquor License (i.e. Restaurant)
Trading times of the Business.
Liquor License Number.
30. Order Signs for the Ladies and Gents toilets where applicable.
31. Order fire extinguishers and signs.
32. Order staff attendance book.
- Some notes on a Licensed premises.
1. Minors. Section 46 of the Gauteng Liquor act 2 of 2003. A licensee shall not sell or supply liquor on the premises to persons under the age of 18 years or allow such person..... to be in any restricted part of those premises. (A restricted part is means a bar on any licensed premises in respect of which an on-consumption license has been issued,.....
2. Intoxicated persons. Section 47 of the Gauteng Liquor act 2 of 2003. A licensee shall refuse to admit to the licensed premises or any part thereof, or sell or supply to an intoxicated person and shall have such person removed from the premises or any part thereof. (An intoxicated person is when his/her capabilities are so impaired by liquor that he/she is likely to cause injury to himself/herself or be a danger or nuisance or disturbance to others.
3. No liquor may be consumed inside a Liquor Store.
4. No Liquor may be removed from an on-consumption premises such as a Pub, Restaurant, Tavern, Club, Night Club, and Pool Club. Hotel etc.
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