Property: Finding the perfect pub

Finding the perfect pub can be hard work, but worth it in the end

In the second part of our special feature on property, we discuss how to find the perfect pub and make sure it has a profitable future.

The first step for any potential publican is to think carefully about whether you want to take on a tenanted, leased or freehold pub.

“The type of running arrangement a new operator decides to take on a pub really depends on the level of finance available to them and the degree of commitment they want to make to the venture,” explains Colin Siebert, head of licensed and leisure at Colliers International.

Generally, a freehouse is considered the most attractive option because you own the property, take home all the profits, and have the freedom to run it as you wish. However, buying a freehouse involves a substantial financial commitment, which is not always possible. There are also fewer freehouse properties on the market, limiting your choice.

“The big advantage of lease and tenancy is that there is a lot more choice so it is easier to find an operation for a lot less funding that is right for you in location and style,” explains Simon Hall, head of pubs at  Fleurets.

Leased pubs are usually offered for a fixed term of anything from three to 25 years, without a tie, and are a saleable asset - meaning that theoretically you can build up the business and sell it for a profit.

However, they also represent a higher risk than tenancies, which are shorter, more flexible, usually have a lower level of rent and quite often don’t include external repairs, which remain the landlords responsibility.

“You should be aware of the long term trading prospects for the area before entering in to a long term lease arrangement,” warns Siebert.

Tied tenancies offer the cheapest way to enter the pub business, although they can be quite restrictive in terms of what you can buy and sell, and offer less potential for financial gain.

“The great thing about the pub market is that there are different entry points for different degrees of funding,” says Hall. “There are merits for all of them and different levels of risk and reward for all of them.”

What sort of pub?

Once you have established the running arrangement that best suits your needs, you can start thinking about what sort of pub you want to run.

According to Neil Morgan, director and national head of pubs and restaurants for Christies + Co, this will usually depend on your personality and your skill set.

“A gregarious person may wish to own a pub where they can constantly mingle with the customers.  Another may lean towards a ‘hands-off’ approach and wish to be a proprietor with less personal presence,” he says.

“A chef could quite happily take a country destination unit as a means of attracting business and a would be impresario may well derive satisfaction, as well as enhancing income, by promoting entertainment within a town centre pub. 

“A purchaser with penchant for those things domestic may be looking for a pub with accommodation and potential.”

You also need to consider location, although experts agree that most publicans don’t want to stray too far from home when looking for a potential business.

“The best tip I can give for choosing the location of a pub is for it to be somewhere you are familiar with, where you know the local market and what the punters want from their local pub,” says Siebert.

Once you know what sort of pub you want to run, you can start looking out at what opportunities are available in your region.

“If you are looking to go into the pub trade for that first time or if you want to add another pub premises to your portfolio, the best way to research this is via the websites of specialist property agents,” Siebert recommends.

“If you prefer a tied lease, it is also possible to find these types of opportunities directly via pub company websites.”

Questions, questions, questions

When viewing potential properties, it is important to look beyond the pub walls and consider the wider picture.

“Visual judgements need to be tempered with other criteria,” says Morgan. “What are the economic developments within the area? Are there, for example, local factories opening or closing? Are there new housing developments or any road changes which would mean the premises would be by-passed, or which would result in greater trade?”

You should ask plenty of questions about the current business to establish a full understanding of its strengths and weaknesses.

“Has the seller a strong personal following or otherwise? Has he or she maximised the full potential of the business?  Are there any lurking dangers?” asks Morgan.

Fuller’s recommends that if you find a pub you are seriously interested in, you should ask for a detailed breakdown of the financial situation of the business and any obligations relating to it. These questions would include (but not be limited to):

  • Detailed information on the physical condition of the property and insurance obligations
  • A full explanation of the repairing obligations of the agreement
  • Details on any restrictions contained within the lease or tenancy agreement in respect of the use of the premises
  • Details of the premises licence, together with any conditions relating to the licence, plus details of any enforcement action that has taken place during the previous two years
  • Three years' trading history
  • The terms of the supply of all amusement machines, their management and the share of income
  • A copy of the terms of the tenancy or lease agreement

Business planning

Once you have a good understanding of the current financial situation, you should be able to work out the potential future profitability of a business, and identify areas for future growth.

Things to keep in mind include:

  • The ratio of wet sales to food sales
  • Percentage of net profit compared to net turnover.
  • Percentage of staff costs to turnover
  • Barrelage

If you are taking on a tenancy or lease from a pub company, you will have to create a detailed business plan - including profit and loss and cash flow accounts for at least the first two years - of the business you are proposing to take over, and have this approved by an accountant.

“We strongly recommend that you obtain good professional advice from experts in the licensing trade such as solicitors, building surveyors, accountants and a bank manager in the preparation of this plan,” says a Fuller’s spokesperson.

“You will need to fully understand the plan you present and be prepared to discuss it along with your financial projections. You can find benchmark expenses figures for the type of pub you are looking for via the BBPA, ALMR and FLVA."

Pub companies will often run their own compulsory training courses, and the BII has designed a pre-entry awareness training course (PEAT) which all new applicants are required to take.

Finally, if you are buying a freehouse, you will need to get a structural survey and valuation report carried out on the property before you buy.

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