Legal Libations in Your New Restaurant
By this point in your restaurant-buying adventure, you’ve likely earned an A+ for doing your homework. You know the must-haves and deal breakers to look for in a lease, you know what a healthy cash flow looks like, and you can estimate the life expectancy of a range burner by the color of its flame. If all that torturous attention to detail and squinting to read fine print has led you to belly up to the bar for a good stiff drink, now’s a good time to start thinking about one more necessary torrent of paperwork that often catches prospective buyers off guard: the liquor license.
If your concept is more of a family-friendly eatery and less a late-night haunt, you can soar right past this entry in our series on cautions to would-be buyers, but if you’re placing your bets on booze to provide buoyancy to your bottom line, listen up. Failure to get the details of your liquor license worked out well in advance of opening day could mean hanging your business plan out to dry.
Getting approval to sell liquor-by-the-drink in your newly-acquired restaurant should be as simple as hitting up your local ABC board for a liquor license in your name, right? Maybe.
See, some states only allow a finite number of licenses to be issued within each jurisdiction, say, one license for every 2,000 residents. In many of those local systems, that pool of licenses was used up long ago. If you reside in one of the following states, an available liquor license may be a scarce commodity: Alaska, Arizona, California, Florida, Idaho, Kentucky, Massachusetts, Michigan, Minnesota, Montana, New Jersey, New Mexico, Ohio, Pennsylvania, South Dakota, Utah, and Washington.
Those states’ prohibition-era quota systems have created highly-competitive markets in which liquor licenses are often traded at prices as high as a quarter-million dollars or more. Perhaps one should heed the State of California’s gentle advice to would-be buyers to be “cautioned regarding extensive financial commitments, plans for grand openings, etc.,” until you’re sure it will be legal for patrons to open a tab on opening day.
As Easy as ABC
The good news for you as a prospective buyer of an already-established restaurant is that most states with those quota systems have procedures in place for the existing owner’s license to essentially be “transferred” into your name alongside the rest of the stream of paperwork that will shuffle between you and them. It is within your due diligence to coordinate with the seller of the business and the ABC board to make sure that you get the ball rolling towards getting the license transferred before you even start thinking about negotiating lease agreements.
In the 33 states that don’t have a quota system, existing licenses expire each time a restaurant undergoes a change of ownership, so you’ll have to apply for your own brand-new license before you assume control of operations. That’s good in the sense that you won’t have to worry about competing with millionaire foodservice barons for the handful of available licenses, but it’s no guarantee that the one wish your financial well-being depends on will be granted. You’ll need to jump through a series of legal hoops before you can even dream of dispensing a dram.
Here are a few more unexpected bureaucratic maneuvers you may be expected to make:
- The ABC will likely notify the police department or sheriff’s office that a new license is being issued. If they have any concerns about whether the license would be in the public’s best interest, then they may request that the license be denied or issued with restrictions.
- There may be a legal waiting period between when the application is filed and when the license can be transferred or issued. Waiting period or not, the full process may require up to a few months to complete. This is one of many reasons that getting a head start on the process is critical.
- In some jurisdictions, you may have to consult the owners of the businesses within a certain radius of yours and get a majority approval to sell liquor by the drink.
If any of the scenarios described above triggered visions of you crawling back to your first restaurant job for a few months to make ends meet while your license makes it through the administrative machine, don’t lose hope just yet. Regardless of which system your state uses, you may be eligible for a temporary or “transitional” license while you’re waiting for the application to go through. Some states may attach certain conditions to those provisional licenses, including that the restaurant you’re buying was operational within the 30 days prior to you taking over.
The takeaway here is to start getting your liquor license sorted out right now. Liquor laws vary dramatically from state to state, and the U.S. Department of Treasury keeps a list of each state’s alcohol beverage authority. Contact the one in your state to learn the details that will govern your license application or transfer.