Do You Need a Liquor License at Your Restaurant?

Food and drinks naturally go together, so obtaining a liquor license for your restaurant is worth considering. However, it's not always a slam dunk, and you may find that the potential for increased profit is outweighed by the ongoing costs and inconveniences involved in serving alcohol. When determining whether to get a license, here's what you should know.

Know the Positives

Acquiring a liquor license has the potential to do a number of good things for your restaurant. First of all, alcohol is profitable. Restaurants survive on razor-thin margins, and although each market is different, you can usually mark up alcohol more than your food. Even better, alcohol encourages a convivial atmosphere that can keep diners in their seats and ordering food for much longer than they otherwise would. If you form partnerships with local wineries or craft brewers, your beverage list could even become a key competitive advantage. On a pragmatic level, having just a beer and wine license can prevent you from losing customers to rival licensed establishments nearby.

Educate Yourself

Before you take the plunge and start your application, research local laws that cover the sale of alcohol. You'll have to comply with state and county legislation, and many municipalities attach additional conditions or restrictions. For example, you may not be able to get a license if you're too close to a church or school, or if you're in an area that's already rich in licensed establishments. Be sure you understand the application process itself and have all the necessary documentation at your fingertips. You may find it helpful to work with a professional liquor license consultant, who can handle the details in exchange for a fee.

Pick the Right License

The terminology varies between states, but your choices usually come down to a basic beer and wine license or a full license that also permits the sale of hard liquor. A beer and wine license is the easier option. It usually costs less, and if you're a small operator, you might only need to allocate a single cooler to hold your inventory. A full license is a bigger deal because you'll need to commit to a much larger inventory. At a minimum, you'll not only need just the staples—spirits such as vodka, gin, rum, tequila, and whiskey, as well as wine and beer—but you'll also need to invest in appropriate mixes and garnishes. If your clientele tends to order cocktails, those can be a substantial additional expense.

Know the Fees

The cost of a license is also wildly variable, depending on where you live. It can range from a few hundred dollars in some states to thousands in others. Over time, you'll most likely make that back through sales, but it's a factor to consider if you're working with a limited budget. A larger issue is that some areas have a moratorium on new licenses, meaning you'll have to buy an existing license on the open market. For example, a full liquor license in California sells for $12,000 (at the time of writing), but few are issued—only 25 for all of Los Angeles County in 2015—and buying one on the open market can cost hundreds of thousands of dollars. If you live in a moratorium area, you will almost always need a mortgage-style loan to purchase your license. It's not all bad, though. Similar to a house, you'll be building equity in an appreciating asset, and eventually you can sell it to recoup that investment.

Consider Staffing and Other Complications

Holding a liquor license brings a number of complications in its wake. For starters, you'll need to upgrade your insurance to increase your liability coverage. You'll also need to ensure that any employee who handles alcohol is of legal age, and you may have to screen them for felony convictions. Many jurisdictions require servers to be formally trained and certified so they understand how and when to ask diners for identification, and how to gracefully "cut off" an inebriated customer. You'll need a system to manage and protect your inventory of alcohol. If you have employees who sneak drinks during or after work, or who deliberately make stronger drinks for favored customers, you may see a dip in profit.

Determining whether a liquor license is worth obtaining will depend greatly on your restaurant's unique details. For a fine dining restaurant, serving alcohol is probably a good idea. In casual or family-oriented restaurants, it's less crucial but can provide a competitive advantage against unlicensed rivals. Across all restaurant types, your size and sales volume can help you make the right decision. The smaller your dining room, and the fewer guests you serve per day, the longer it will take to earn back your investment. But if the math works for you, it's worth taking a look at whether serving alcohol is a good fit for your establishment.

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