“The Common Sense Guide to Buying a Pub, Bistro, Licensed Premises.”
The Common Sense Guide to Buying a Pub is now available to purchase as an ebook through www.smashwords.com. for $5.99 or UK equivalent approximately £4.30, depending on the exchange rate.
In addition you can read some the book below before you buy, the book was written for the UK Market, but a lot of the general Business Information is International, we have put around a quarter of the book below for you to see whether you feel you need to buy the rest from Smashwords, we have no desire to waste your time and money if it is not for you.
The biggest problems in any business are time and money, if one piece of information in this ebook saves you time or money, the cost of the book is minimal.
About the Author.
The principal author was formerly a CBII with the British Institute of Innkeeping, has worked in the Licensed Trade for 35 years, as a successful publican and more recently as a professional Consultant to both new and established licensed premises. The author has specialised in buying pubs and licensed businesses that are in decline and turning them around in to profitable and successful establishments.
He also runs a free information site for the Pub and Restaurant Industry www.buyingapub.com and www.barrel-dregs.com which exposes many of the questionable activities by a number of companies, with a touch of humour, bad companies do not like being laughed at.
If the information helps you and you can afford it, please make a small donation to the Licensed Trade Charity, they do a lot of work helping less fortunate people in the Industry.
The advice is not wholly the authors but a consensus of opinions by like minded people in the industry who want to see better informed people entering the Industry anywhere in the world.
Contents, in order of initial importance.
Chapter 1 Initial Thoughts
Chapter 2 An Overview
Chapter 3 Type of Licensed Premises
Chapter 4 Viewing Premises
Chapter 5 Pub Accounting and Accountants
Chapter 6 Legal Advice
Chapter 7 Survey Advice
Chapter 8 Insurance
Chapter 9 Cellar Equipment
Chapter 10 Pub Fixtures & Fittings
Chapter 11 Stocktaker
Chapter 12 Mortgages
Chapter 13 Bank Accounts
Chapter 14 Card Machine PDQ
Chapter 15 Employment Advice
Chapter 16 Staffing Advice
Chapter 17 Financial Advice
Chapter 18 Do’s
Chapter 19 Don’ts
Chapter 20 Environmental Health
Chapter 21 Pets
Chapter 22 Local Suppliers
Chapter 23 Waste Disposal
Chapter 24 Accident Books
Chapter 25 Check List on Completion Day
Chapter 26 Conclusion
Chapter 27 Final Word
Chapter 1 Initial Thoughts
Would you buy a used car from a dealer, with no guarantees or warranties, with probably doctored mileage? No you wouldn’t. But that’s what thousands of people do when they buy a pub or licensed catering business, there are no guarantees and do you really know where to start to verify that all the information given to you is correct?
According to a survey, 64% of men, when questioned, said that owning and running their own pub is their dream occupation. Contrast that with the startling fact that in recent years in one pub company’s track record in Britain, the average length of tenure for a landlord was only 9 months. So whilst there are thousands of successful licensed premises up and down the country, why do so many landlords throw in the towel so early in their dream job?
Everyone involved in the pub industry has a vested interest in selling you that business or some form of business and will tell you what they want you to know, not what you need to know. We try to show you these interests and vested interests where possible and welcome your feedback on any questionable activities that you think we may have missed.
The licensed trade is the least professionally educated sector in the country. By passing a one day course in the UK, you are entitled to run a complex business with no further technical training. The course itself deals with licensing law, not how to run a licensed business or buy one.
The Common Sense Guide to Buying a Pub is your guide if you decide in a moment of temporary insanity that you want to buy a pub or bar, or, you think that you can run your local better than the present landlord. You don’t have to do what we say, but at least think about it. If this book does that then we have achieved something.
The book is based on buying a pub in the U.K. and their Licensing Laws which are not necessarily the same as other countries.
The bulk of the business information is based on normal business common sense and our aim is to try and save you money and make your business more profitable on the sort of things that many courses fail to mention and newcomers to an industry are totally unaware of.
The Book is a concisely written e-book that contains in depth information on buying a pub; its content is not intended to make you rush into the first picturesque pub that you see, but to look beyond the façade and the agents glowing report. Look at the whole business as any experienced operator would do.
If you can’t find the answer to your satisfaction, we hope to guide you to where you might get the information to answer your questions. From this you will be able to recognise where problems may lie in your future business. We show you the key elements of buying a pub, from who to speak to, who to take professional advice from and who to avoid.
This is an impartial guide. The vast majority of companies in the licensed trade have a vested interest, often to encourage you in your initial enthusiasm to spend money. Often their advice is loaded with self-interest; a commercial agent trying to shift a problem establishment from their books; a pub company trying to tie you in to an unfavourable long term lease with a total tie to all the products that they supply. Their discount from the suppliers is enormous; you get minimal discount, if any; your profit margins are cut to the bone, just to sell your beers and products at a realistic price in the market.
We need the services of Solicitors, Accountants, Banks and a whole range of accounts with a variety of supplying companies etc., before you start trading, which ones do you use? Be careful about using Solicitors or Accountants that do not specifically deal with the licensed industry and where applicable leasehold premises.
Do not accept anything that is described as “The Norm” without fully understanding the short term and long term implications.
Far too many people buy pubs with little or no experience. Just buying a pub without running it is quite a substantial minefield, it is a Business, not an extension of your private life, though to be successful, you need to make it appear that it is. It is a people business, always remember people make people, the more you have in your pub, the more you get coming in.
Whilst we learn by making mistakes this guide will help you avoid the common errors and avoid the mistakes that we and many others have made in the past.
Because it is a Business, this gives rise to many of the people that you will meet and deal with initially, providing conflicting advice, of course invariably aimed at their own gain, in many cases. This book goes a long way towards telling you what you need to know, or question that which you don’t know, in buying a pub.The book is your guide if you decide in a moment of madness that you want to buy a Pub, Inn or Tavern, or you think that you can run your “Local Pub” better than the present landlord. This is a guide to steer you through that moment of madness. You don’t have to do what we say, but at least think about it. If this book does that then we have achieved something.
Please note that much of this publication is based on personal experience and anecdotal evidence. Although the author has made every reasonable attempt to achieve complete accuracy of the content in this Guide, they assume no responsibility for errors or omissions. Also, you should use this information as you see fit, and at your own risk. Your particular situation may not be exactly suited to the examples illustrated here; in fact, it’s likely that they won’t be the same, and you should adjust your use of the information and recommendations accordingly.
Any trademarks, service marks, product names or named features are assumed to be the property of their respective owners, and are used only for reference. There is no implied endorsement if we use one of these terms.
Finally, use your head. Nothing in this Guide is intended to replace common sense, legal, medical or other professional advice, and is meant to inform and entertain the reader.
Chapter 2 An Overview
From the outset, we must sadly assume that everyone selling a business is economical with the truth.
The majority of people don’t lie, but they have a wonderful habit of omitting the problems that you need to know.
The licensed industry is one of the worst educationally informed professions, it has for years evolved on the principle that you buy a business, have some rudimentary instruction by the person selling the business and then find out how it really works.
There is also the continual belief that you can actually run the business better than the present owner. A large number of people look at possibly an overweight, jovial or miserable, as the case may be licensee with a glass in his hand chatting to a customer or wandering round the pub apparently aimlessly and assume that they have to be able to improve on his or hers performance. He may well have water or a soft drink in the glass; his eyes are everywhere checking his customers, the service and a myriad of other things to make the business tick. He could of course have a large whisky and be exactly what he looks like – I have always preferred to be the former.
The reason for the industry being the least technically educated is that you can take a one day course, obtain a license and immediately take over a business with no previous experience, your only requirement being that you satisfy the Police that you do not have a criminal record. If like any other profession a licensee had to undergo three years training and study before they could obtain a licence we would not have the failure rate that we do. The failure rate is exacerbated by a large number of would be licensees buying pubs that have no serious chance of survival and their inability to recognise this fact, through lack of knowledge and insufficient experience.
I met the then Chairman of one of the Commercial Agents organisations at a meeting some years ago and suggested that we at least tried to make would be buyers better informed. He immediately said it was not in their interests to do so, because it would slow up the selling of businesses if people were more successful and kept their businesses longer. The consistent failure rate provides a constant flow of businesses for them to sell. He’s right from his side, but irresponsible from the would be buyers side. Many of us would like to see this attitude change, but it won’t happen unless people buying businesses are better informed.
Chapter 3 Types of Licensed Premises
Having decided that you feel like a career change, what sort of business do you want?
Totally free of tie (with no restrictions on what you can buy and who you can buy from). You can get a lease without restrictions but they are quite rare, usually local authority, country estate or private individuals. With a genuine freehold freehouse you can do what you like with, within the Planning and Licensing Laws. Although they are considerably more expensive, run properly they have good capital growth. If you buy a freehouse, you may find it quite difficult to keep up to date with current legislation etc, there are a number of sources of information on the internet, we have regular free updates from top licensing lawyers on www.buyingapub.com. Also the Publican Morning Advertiser on line does the same.
A large number of freehouse owners can become loners and are often well out of touch with the latest changes. Just before the change in the licensing laws in 2005 I visited a freehouse where there was a lady licensee, as part of a campaign to make licensees aware of the changes in the licensing act and the move from the magistrates to the local authority as the licensing authority. I went into the freehouse and saw the lady’s husband and he said he would like to talk to me, she came out and I asked if she was fully aware of the new changes. She said her solicitor had told her that she had everything that she needed to hold a licence, which was the old one day qualification. I said that the licensing law was changing completely later that year and she had to apply for the various licenses etc. required by the new Act. She said she knew nothing about it and didn’t believe me. I said it was an Act of Parliament, she said that they would get all the pubs in the village to object and it would be dropped. I said it was somewhat more serious than that, she replied that she found me totally intimidating and told me to leave the premises. She had totally ignored all the press and TV news and was living in her own little world and chose to ignore the change in the Licensing Act very much to her cost – you need up to date information, the laws in the UK and many other countries on selling alcohol can be draconian, especially where young people or drunks are concerned.
Lease from a Pub Company or Brewer
They frequently claim to be Freehouses, but in most cases they are totally or partially tied to buying all their wet stock (at limited discount, if any) through the Pub Co.
A lease is normally full Repairing and Insuring and for a variety of periods from 10-21 years. Leases are considerably cheaper than freeholds, the higher the rent in respect of a poor turnover or profitability, the cheaper the price of the lease. If the business can be made profitable, there is a certain amount of capital growth to be made on your initial purchase price.
If you decide on a lease with any discussions or agreements with the Pub Co representative, ensure that it is confirmed in writing or going to extreme lengths take a tape recorder with you. This may sound draconian, but it helps. Unless it is confirmed in writing a new BDM (Business Development Manager) will walk away from it.
Not every Pub Co is like that, some are excellent, but you won’t know until you deal with them. A lot is down to the individual BDM, if he is being pushed to let a property, he could say anything which he may well believe at the time, but he may be over ruled by someone higher unless you have it in writing. However nice and friendly he may appear do not agree to anything until they confirm in writing.
They used to have more people chasing their leases than they had available, which gave them the whip hand, now people are more careful and these highly publicized Pub Co’s are now trying a number of different ploys to get new tenants or lessees for their pubs.
There are a number of groups on Facebook, where many licensees will warn you of the undesirable Pub Co’s, the main one being “Over a Barrel”, which has absolutely nothing to do with www.barrel-dregs.com.
LinkedIn have many groups of experienced publicans, who will always provide helpful information.
The Pub Co’s refer to their pubs as freehouses, compared to tenancies where you are only allowed to sell the brewery beers, though most have deals to sell a large variety of other beers that they do not brew, these days. The Pub Co’s do not brew beers but sell most of the available beers on the market. As a lessee in most cases you are tied to buying these beers etc. from the Pub Co’s, they sell them to you with limited or no discount.
If you have a genuine freehouse and can buy direct from the brewers, at this moment of time you can get up to £200.00+ per barrel (36 gals) discount, this makes it very difficult to compete price wise if you are getting no discount buying through a Pub Co.
Leases can be bought through commercial agents, who are normally selling them for an existing lessee. Unfortunately being an existing lease it is very hard and can be costly to change the conditions of the lease, if the Pub Co’s are selling a new lease it is possible to negotiate other terms within the lease, if they really think you will make a success of the pub. If you don’t try you won’t find out. There are some leases still operating where the Pub Co has taken over a company and they are able to buy out of the Tie. Check the limitations on your buying agreements within the lease.
A colleague who was a senior director in one of the largest brewers in the country said that before the Monopolies and Mergers Commission reduced the number of pubs that a brewer could own, causing the break up of the traditional large brewers, that they had a duty of care to the tenants of their pubs and the communities that they were in. He like me would like to see the situation reversed, where that care still existed.
Now we have Pub Co’s run by accountants who are nothing more than property companies, whose bottom line is profit. Sadly they lack the care that the family brewers have and they are now rapidly disappearing as soft targets for takeovers.
The traditional tenancy is normally through a Brewer, who restricts you to buying all their beer products and all the other lines that they supply. The traditional tenancy is anything from one to five years with the tenant being responsible for the internal maintenance.
However with the growth of the Pub Companies a lot of these things have been changed and a tenancy is another name for a short term lease.
A tenancy can often be bought for the price of the fixtures and fittings and can be the cheapest way of entry into the pub industry. There are specialist agents that deal with tenancies, but it is worth approaching the traditional family brewers. They brew their own beer and in the main look after their tenants.
Be careful of the so called breweries who have become big corporate players; sadly they have learned a lot of lessons from the Pub Co’s. You become a number or name on a balance sheet. Read their small print and believe only that which you can verify and ensure that everything that is agreed verbally is confirmed in writing.
These are another twist on the lease, tenancy deal operated by some companies. Read the small print and conditions and ensure that you understand and are happy, after taking legal advice. The conditions and pitfalls relating to leasing and tenancies will apply. So ask as many questions as possible and insist on written confirmation on anything that is not in the franchise agreement, be careful of unattainable targets, insist on the last franchisees or tenants purchasing records for the last year. The company will have them, though they may be very reluctant to produce them, they may have five years before when the place was doing well, but last year’s figures may be a different story. If they are bad it could give you a whip hand in negotiations.
Type of Pub
There are two types of pub as a rough guide.
These do not do any food and are purely drinking pubs. These are very hard to find, but they do exist. They are much easier to run since you do not have to employ the catering staff and all the additional essentials that go with catering. You need less staff, less space and the profit factor is lower, the overheads are much lower, since you are not using the vast amounts of gas and electricity running the kitchen and refrigeration for food and you don’t need the additional storage. Great if you can get it.
The majority of people want a food backed business, the profit and turnover is higher, but you need more staff and somebody to chef. If you have a chef make sure you know as much about cooking as he does, otherwise you can be held to ransom in times of stress. Chefs are notoriously fickle, they do a hard job and good ones are always trying to be poached by another business.
Make sure that if the chef does not appear that you can take over and maintain the standard until you get a replacement. Your wife or partner may be a good cook, but the day will come when the chef does not appear and you have fifty dinners to organise. If your wife can cope she has to be a saint; if she can’t you could be heading for a divorce.
Having Decided To Buy a Pub
Having decided to buy a business, the first thing that you do is to set up a file recording all the information and ALL your expenses incurred in looking for that business, petrol, food and any accommodation etc. Your accountant will advise you as to all the expenditure that is acceptable whilst looking for a business. It is also a good exercise in preliminary accounting.
There are two immediate to hand publications:
1. Daltons Weekly (www.daltons.co.uk)
Deals with all businesses and every newsagent recommends, but does not specialise in the pub industry;
2. Morning Advertiser. A specialist guide to the licensed trade.
You can order the Morning Advertiser through the newsagent or contact them direct from their Web Site.
Both these publications have pages of pubs advertised under an assortment of commercial agents, they also have a regular supply of useful information relating to the pub industry.
Your first encounter will be with a Commercial Agent, who will either treat you like Royalty or make you feel that you have insufficient funds to buy the worst pub on their books. They will make every pub sound like the original “Roses round the Door”. Ignore all the chat, glossy photographs, incredible turnovers, wonderful private accommodation. Their primary aim is to sell the pub. A large number work on the mail shot and large web sites with dozens of pictures, very few are interested in fitting a pub to a person – a sale is a sale. To be fair their duty is to the Vendor their client, there could be a change in attitude on this point with selling leases, see (Guarantor/Privity of Contract Section). Commercial agents have evolved from estate agents in a lot of cases and they have minimal experience of running pubs.
Unfortunately the yard stick for valuing commercial property varies according to the buoyancy of the house market. The turnover and profitability should reflect the value of the business, this only happens when the market is very tough and people have to borrow money on the existing accounts to sustain a mortgage. When the market is buoyant the inevitable bricks and mortar and scarcity valuation far outstrips the business valuation, so be careful.
Look at every pub that comes within your budget and area, visit and inspect as many as possible initially and get to recognise everything behind the scenes, how bad, how good, how practical, what sort of equipment that they use and it’s condition, whether you can live in the accommodation, or it can be improved quickly to the standard that you require. Don’t forget the front of house obviously, but behind the scenes will be your home and if you can’t live there comfortably, you won’t be able to run a successful business there with all the pressures that are involved.
Chapter 4 Viewing Premises
Front of House and operational areas, this is the initial view that you see and creates the biggest impression, ensure that you inspect every part of the building and the site.
1.Externally: Is it pleasing to the eye, does it look welcoming or can you make it look welcoming? If you don’t like it, prospective customers will not. The strange twist with this is, a scruffy superficial appearance may appeal to certain locals who make it their exclusive club, which is unlikely to be financially beneficial to you. The addition of flowers, window boxes, paint, good lighting and attractive signage can change a pub in a week, but make sure it will lend itself to do that.
2. Internally: Is it welcoming, comfortable, warm? Are the furniture, carpets and curtains of decent quality? Do they all need replacing? If they do make sure that you have the budget to do so. You can buy second hand from dealers who will also buy your old furniture, but beware of totally refitting without getting fixed price quotes.
3. The Bars. You need planning permission and approval from the licensing authority to move or change the shape of any bar. Unless you are closing for a period of time for a major refit, it pays to run the bar in its present position to understand its shortcomings and then apply to change it to suit your requirements.
4. The Beer Cellar, which is an integral part of the bar. Is it big enough, where is it positioned and how close to the bar is it? Brewers love to see a beer cellar miles away from the bar, purely because you waste so much beer on cleaning the pipes. It’s like the mustard on the side of the plate – if you don’t eat it you throw it away, therefore you sell more mustard. Beer is exactly the same, if you have a four pint line (the amount of static beer between the barrel and the pump) and you have fifteen lines, that’s £60.00 + per week of beer being thrown away for a freehouse and up to £75.00 for a tied pub. If you are doing a major refurbishment put the barrelled beer as close to the back of the bar as possible and ensure the beer fitter puts all the fittings on the wall nearest the bar, again they have a wonderful habit of putting the fittings on the opposite wall of the cellar to waste a further half pint per line. Finally if you are stuck with a large amount of beer wastage look into the automatic cleaning systems. Be very careful about the cheaper magnets and electronic systems that supposedly keep the yeast in suspension, they are probably fine if you are a high volume pub, but if you are not get some sort guaranteed get out clause if it does not perform to your satisfaction.
5. Kitchens are the key to any successful food operation. Check all the equipment so that you understand what the individual items are used for and its condition. This may sound a naïve statement on use, but a lot of catering equipment can have a lot of alternative uses in a small or lightly equipped kitchen. You will find that like buying a second hand car, used catering equipment will break down at the most inconvenient time, until you come to terms with its shortcomings. Always have an electrical testing screwdriver, electrical tape, pliers and a large stock of fuses close by. Crockery and cutlery are frequently ill matched and cracked. Before you exchange contracts take a trip to Stoke on Trent and visit Spode and Johnsons and any other china or porcelain manufacturer that has a seconds department 2nds department, it will save you hundreds if not thousands depending on the size of your food operation. Check with the Local Public Health that they are happy with catering arrangements. Each establishment should be registered with them. They will insist that everyone does a current food and hygiene course, if they haven’t done one within the last three years. It is always worth giving the food away on the first night with some complimentary drinks, if you are running a serious food operation, having up to three complimentary nights or subsidised food using a voucher say for £10 for two people. This gives you a chance to see how the staff work and the kitchen operates, if you seriously screw up and you are charging normal prices it will take you six months to get the customers back. Certainly ask for feed back and don’t be frightened to take note of it, however good you are, you are always learning.
6. Gardens: Ensure that all the equipment is in good condition and any suspect areas, like dodgy paths etc. are made good and children need to be supervised by an adult wherever possible. They have a wonderful habit of falling over or off things, occasionally resulting in a claim or attempted claim on your insurance.
7. Car parks should be kept in good condition with disclaimer notices, not that they count for much if an accident occurs and you are taken to court. Putting warning notices in the garden and car park comes under due diligence, a favourite expression by Health and Safety.
8. Teams: Beware of pubs with a large number of teams (darts, skittles, football, Eucre etc). They can be very good business, but you need to find out, not from the vendor because he will be very economical with the truth, as to whether they are all genuine regulars or fair weather teams. Because of the pub league structure, pubs may only be allowed one or two teams in the league, consequently you often find that regulars from another pub are playing as your team. They may come in have one drink eat the free food and as soon as they have finished individually or as a team dash off to their own local, leaving you to clear up. The other alternative is that when the pub changes hands that most of them move somewhere else. If you are relying on this as a core business you need to know about all of them. I have bought the occasional pub with teams and the whole lot have gone when we have finally taken over, because the vendor told them that we were changing the whole method of operation. Avoid talking in too much detail about your plans for the business with the vendor, by all means discuss possibilities but do not be specific. If he is a mediocre operator and thinks that you will make a better job of running it than him he will tell all the regular customers that it is all going to change and they like the teams all go somewhere else.
The best thing to do is tell him that you are going to run it the same way as him and you can make up your own mind as to how you operate and whether the existing customers are the ones that you really want as your regulars.
9. Local Customers: A large number assume that they personally own the pub and that they are the main source of income to the business, in some cases they are but in a lot of pubs they are not, this again depends on your business direction. If you are very food based with a busy lunch time or evening business they are not. Locals drink in the local pub but very few eat in there, you will be very lucky if your immediate locals eat with you regularly, maybe once in every four to six months.
Another strange anomaly: on your opening night, hopefully you will get loads of people coming in, the majority will tell you that this is their local. After the free food and drinks they vanish, some never to be seen again. Your real locals come in over the next two weeks, which is something I have failed to understand for years until recently. The previous night they were all in drinking themselves into oblivion, clearing up the cheap stock on the outgoing landlords last night. If the vendor has any sense it is better to sell all the stock at some sort of profit rather that get cost minus 5% with the stock at valuation. Consequently they all have hangovers and their wives are complaining about them going out two nights in a row.
Pub Viewing Reflections
Having hopefully viewed dozens of pubs and consigned most to the bin, you will have been on a massive learning curve, which is essential to decide on the most promising pub to suit your requirements. Every pub is different and every person running it has a different perspective on each one. It is a highly personal business, until you reach enormous pubs, which normally end up being run on a mass food operation basis and becomes a numbers game. If you are fortunate enough to find a couple of pubs that come within your budget, you will need to study the accounts, you will probably be given an unaudited summary of the accounts for the last year or the previous year. When you decide on one that you think will be suitable, ask for audited accounts and the information that you have been given and get your Accountant to go through them and give you a break down in simple terms, unless you are used to reading balance sheets.
Try to relate the ability to trade with those figures against the premises, whether the kitchen looks as though it could handle that level of business quoted or the bar likewise. Also whether your projected business plan was viable with the existing trading areas. Be conservative in any estimations of your growth potential, stick to 5% in the first year, I have seen many people over estimate their potential, they fail to realise that an existing business’s actual trading business, is its market share at that time and any growth is at the expense of another business, creating genuine new business is one of the major problems in retailing, because a business is run badly, do not assume everyone will come flocking to you, you have to overcome the stigma of a bad operator, which can take a considerable time.
Apart from a full structural survey if you own the freehold or are responsible for building maintenance, you need details of an asbestos survey, including all plumbing, heating and electrical equipment mobile or static, gas safety an energy performance certificates.
Gas and Electricity Supplies and other services, make sure you are not locked into a costly inherited supply contract, read the ADD ON’S in the Conclusion, it could save you a lot of Money and your shortest commodity, which is time.
Chapter 5 Pub Accounting and Accountants
You will need an Accountant experienced in the licensed industry. Do not use one that does not deal with that sort of business or has no experience in that field, regardless of them being a good friend or your previous accountant in a business that has absolutely no connection with the vagaries of the licensed industry. You need someone that will do the VAT, PAYE, pick up the paperwork, monthly or fortnightly and tell you where your weak and strong aspects are in the business. In addition an insurance in respect of a Tax or VAT investigation, this amounts to about £100.00 plus VAT per annum, one malicious phone call is all that is needed for an investigation to start and could cost £100’s in fees. I had one some years ago and it cost me over £500.00 and it was dropped after four months when they realised that it was a malicious phone call.
Some trade organisations will tell you that they have a fund of £50,000 for any tax investigation. Read the small print, it frequently has a disclaimer about errors in the accounts, stick with your accountant’s policy, he is the one doing the books.
A word of advice, I have for years accepted my Accountants advice to keep my wife’s drawings below the tax and NI level. This has now proved to be a costly error my present Accountant advised paying my wife sufficient to make an NI contribution and gain a credit, this then entitles her to a full state pension, make sure you ask your Accountant to look into this.
Back to the possible pubs, get copies of the accounts preferably three years if available. Study them yourself, look for discrepancies in areas of profitability, look for fuel, heating and lighting costs, identify your fixed costs, staff costs, if the staff costs are very low have they been paid illegally in cash? Avoid inheriting this sort of arrangement; it could cost you dearly if the staff are moonlighting and the Inland Revenue or Social Security catch you or them.
Check the Rates. This is an area where a lot of pubs are over rated, seek professional advice. Do not use the cowboys who say they will do your rates for you.
I am fed up with seeing new people to the industry who tell me that they have just paid £700.00 to a company to get their rates reduced. These so called specialists have an uncanny knack of knowing within a week when a pub changes hands. They ring up and tell you some story that they know from the previous landlord that the rates are too high and that they can get them reduced. They make an appointment, then appear looking very professional, measure up, shuffle a load of papers around, fill out some forms and tell you that you are entitled to a substantial reduction. The cost these days is in the order of £700.00. It used to be £150.00 when I first got caught. They tell you that they will lodge the appeal with the Inland Revenue Valuation Office and if it is accepted the payment becomes due and you sign the form. They tell you if they do not get a reduction all the money will be refunded. It all sounds very bona fide and the paper work looks impressive. The appeal is always accepted by the valuation office and then they collect the money, if they haven’t already done so. The appeal may be rejected because the previous landlord had the rates reduced, in which case you have to get your money back, by that stage normally six to eight months later. They do not return phone calls, the phone is disconnected and the firm has vanished. If however they stay around long enough for the appeal to be heard, they may in this unlikely circumstance get a £5 or £10.00 reduction in your rates and claim that this entitles them to their fee. As people get wise to this scam the wording and content changes, but the principle remains the same. Make sure that anyone doing your rates is a bona fide member of the RICS (Royal Institute of Chartered Surveyors www.rics.org ).
If you want an informed opinion ask the local County Council Rating Officer to come and see you, but make sure you have all the facts why your rates should be reduced e.g. factory closures, you may be the only community business in the village, the turnover is way below the figure that the rates are based on etc. Emotive pleading does not do much good.
Having done all this, you may be able to recognise some very duff accounts and you think this particular pub a possible, ask your accountant to go through them. If he is experienced in this business he will see through most things and put you right, whereas someone not experienced will miss the discrepancies.
I bought a freehouse many years ago, where the owner had been feeding £500.00 a week through the till, purchased a lot of stock which he sold for cash and pocketed so that the purchases to sales balanced up, paid the Tax and VAT, but it inflated the value of the property by thousands and I paid way over it’s real value and found there was minimal business. Two accountants confirmed that the accounts were correct. To be fair it would have been virtually impossible to identify this particular fraud. When we finally got in I realised that there was insufficient cutlery to run the level of catering that the accounts were showing. Fortunately I sold it two years later for more than double what we had paid with seriously good trading figures for the last eighteen months, but the first six months were a nightmare.
Record of Takings
If you now decide that this is the pub for you ask for the weekly or daily takings record, set up a graph showing the takings throughout the last year, you then have a record of the takings flow pattern throughout the year, which will give you an indication of busy and slack times, put your takings on the chart for a comparison with indications of all things that affect the business in that week or day i.e. rain, snow, World Cup. Olympic Games, big wedding reception etc. all businesses run to a pattern and if you can identify that pattern it makes it easier.
Chapter 6 Legal Advice
Pub Solicitor or Licensing Consultant
Having got this far you need a Solicitor and again one that deals with the latest change in the licensing laws, or you could use a licensing consultant, who will be up to speed on the licensing laws. You will need to do the APLH, formerly NCPLH which is the National Certificate for Personal Licence Holders in the UK. Having passed this exam you then apply to the local Licensing Authority for your personal licence, which in all probability is the local authority in the area where you are living, not where you are about to live at some stage. If you move you must register the change of address with the Authority where you got your licence. If you do not you are liable to be fined quite seriously. If you have a conviction check with the local police as to whether it is no longer relevant or that it will exclude you from getting a licence. Do that before you apply for a licence or commit yourself to buying a pub. A drink driving conviction can be a problem.
The licensing exam does not tell you how to run a pub, but it does teach you about your responsibilities within the law.
Pub Essential Qualifications
It is advisable to find a three or five day course depending on your time and availability CPL are one of the largest leading trainers in the UK www.cpltraining.co.uk, they are also responsible for administering the APLH. They also have a number of “E” learning courses. They have accredited Trainers all over the country. You should not have to travel miles to do a course, which frequently happens with advice from organisations who are not intimately involved in the industry.
If you or anyone that you are putting through a course suffers even slightly from dyslexia or a similar disability they have to make special provisions for them, if they do not or refuse to, contact the CPL immediately on 0151 6506910, firstname.lastname@example.org.
Ensure that all your licence applications, personal and eventually the premises licences etc. are all in order, your solicitor should handle this. If you have taken the exam (APLH) you are perfectly entitled to apply to your local licensing authority to get your personal licence, even though you are not involved in the business or have any premises at this moment of time. The licence is for ten years – at this moment of time it costs £30.00. If you let your solicitor handle it he will put his own costs on top. He will apply for the premises licence or transfer and nominate the premises supervisor whoever you decide is going to hold that position.
Gaming Licence for Fruit Machines
If the vendor has a gaming machine ensure your solicitor makes the correct application and is aware of the fact that there is a gaming machine on the premises.
Again ensure that your solicitor is well aware of any entertainment licence and subsequent conditions that are in force in respect of providing live entertainment. You will need to refer to the existing premises “Operating Schedule” this tells you exactly what limitations and conditions have been imposed by the licensing authority on the premises in respect of entertainment and everything else.
Environmental Performance Certificate
Make sure that your Solicitor ensures that an up to date EPC Certificate (Environmental Performance) is available. An asbestos and Gas check has been carried out and documented.
Pub Operating Schedule
This is the operating schedule in respect of your agreed licence with the local licensing authority under the new licensing act. Get a photo copy read it and fully understand it and make sure your solicitor is well aware and has advised you on any key points. You may find that because the licence runs to 1.30 am on three nights that you have to have a door supervisor for those nights. He has to have done the Door Safe exam and be registered with the SIA (Security Industry Authority – www.the-sia.org.uk) If he is not you cannot use him and you could be heavily fined if you do so. You cannot use a friend or member of staff who is not a registered doorkeeper if your operating schedule states that you must have a door supervisor at specified times. You may find that because the business is in a high risk built up area that they may require a Personal Licence Holder to be either in attendance at all times that you serve alcohol or in close proximity. You need to check the local licensing authorities policy on the need for a Personal Licence Holder to be around and in some cases how many you may need to operate.
Gaining Pub Experience
If you have no experience in the industry a three or preferably a five day course will give you an insight, try and find a local publican who may appreciate your help in return for some guidance on what to look for and do.
The vendor of the property you are buying should allow you at least a week’s experience on how the business runs. Do not take everything that the vendor says as gospel, make up your own mind as to what is good practice and fact. This training period will only occur after you have exchanged contracts, they will never let you in before exchange.
It is very advisable to get as much experience before committing yourself to ensure that you are compatible with the business, eating and drinking in a pub is a million miles away from running one.
The Add On’s at the end are updated with new information whenever possible.
Freeholds and Leases etc.
Ensure that whichever Solicitor that you use is experienced in commercial law and selling commercial property. It is not like house conveyancing. It is easier if you are buying a freehold pub.
You should always have a survey. Business premises are notorious for old plumbing, DIY wiring etc. especially with leases, always agree the dilapidations with the Pub Co before you sign a lease.
If you are buying a lease, ensure that you are fully aware of all the restrictions, trading and property wise that the landlord has included. Make sure that you are fully aware of the basis of rent assessment and that your solicitor is not letting you sign a lease where the landlord has free reign to do what he likes on this matter, I see too many people who sign the lease with their eyes shut.
Beware of the Privity of Contract in Older Leases.
The principle in English common law that landlord and tenant continue to have obligations under the lease despite subsequent assignment. Privity of contract was abolished for new leases coming into force from 1 January 1996. Leases entered into before then are still subject to privity, but landlords wishing to sue previous tenants still bound by privity have to serve notice within six months of rent or service charges becoming due. The current legislation enables landlords in certain circumstances to require the outgoing tenant to guarantee the performance of the incoming tenant, until there is a further assignment. Seek advice from your Solicitor on the “Privity of Contract” it has been largely removed but there are still companies out there trying to impose it in some shape or form. Some insist on a Privity Clause (referred to now as a Authorised Guarantor Agreement or AGA) in respect of the person or persons that you assign the lease to. This means that you are ultimately responsible for any failure on their part in respect of the Landlord for the duration of their leasing of the property, also the Landlord is entitled to come back to you for any failure to maintain the property during this period (Dilapidations). It is possible to negotiate the Privity of Contract or AGA aspect out of a lease with some companies, though the majority refuse point blank and it has in principle become standard form in any commercial property lease.
It is seriously worth investigating forming a Limited Company in respect of the leased property and after the assigning of the lease to a new tenant, liquidate the company. If you are a sole trader or partner you can be caught at any time of the lease’s life in respect of your assignee. The Pub Co’s are often reluctant to accept a Limited Company since a liquidated company has no assets for this reason.
Looking at it from a purely practical viewpoint, the company will not let anyone take a lease whose references etc. will not stand up to scrutiny, so effectively you cannot let to any “Tom, Dick or Harry”, it is more important that the assignees references stand up from your side rather than the landlords, because of the longer term implications.
In this increasingly litigious world it could be argued that commercial agents should exercise more care in selecting possible assignees for leases, since they supposedly have a duty of care to the vendor. Their favourite expression if they are ever quizzed over the quality of would be purchasers, they are vehement that the decision in choice of assignee is not theirs but the vendor and there is no way that they could be held responsible, which makes it vital that you ensure yourself of the real quality of a would be purchaser. If someone fails the company can then rewrite the lease to suit their latest set of conditions, they are also legally entitled to have the property brought up to their required standard at the lessee’s or previous lessee’s expense. If you haven’t had a survey done when you took over the lease you don’t have a leg to stand on in respect of the extent of the work required by the landlord, it may cost you extra money but it may save you a fortune at a later date with sharp landlords.
A very useful Web Site is the “Glossary of Commercial Property Terms” issued by the Department for Communities and Local Government www.odpm.gov.uk. This explains in simple terms the majority of legal phraseology involved in property purchase, if you do not know what it means check it out i.e. Privity of Contract, the majority of people would never associate this term with what it actually refers to and it’s possible draconian results. Make sure that your solicitor will not let you sign the lease if there is an outstanding schedule of dilapidations or if the landlord is about to do this. Always have a survey, especially with leaseholds. If landlords change it is one of the oldest games in the book to send a Surveyor round to check the property and then bang a schedule of dilapidations on the new lessee just to get the property up to scratch or put them under pressure to quit, especially if the new landlords feels that they can get a better rent with a new lease.
Something that I fail to understand is that they very seldom seem to do it to an exiting lessee, they appear to wait for a change before this happens.
A tenancy can be the least complicated, but again you need legal advice and help, the same as for a lease.
A Tenancy at Will has no security under the Landlord and Tenant Act.
Chapter 7 Survey Advice
You may be persuaded that a survey of a leased or tenanted pub is not necessary, like any property transaction either freehold, leasehold or a tenancy, a survey in respect of your property commitment’s is essential.
Firstly you may get a knowledgeable friend to view the property to identify any obvious faults before you commit serious money to a professional survey. It always seems such a total waste of money to pay for a full survey when there were some obvious serious structural defects which any experienced builder would identify or suspect areas where specific questions need answering when a full survey was carried out. Two opinions are better than one, the need for a professional survey is vital before purchase, if something is missed then the surveyor must have professional indemnity, your friendly builder will not.
A full structural survey is essential if you are responsible for the whole building and the dilapidations must be agreed with the landlord or his agent, before you sign the lease, do not sign the lease without a total agreement confirmed in writing to your satisfaction and that there are no outstanding dilapidations.
Always have dated photographic evidence of faults or suspect areas in a survey.
The industry is littered with dilapidation claims where the landlords agent was alleged to have said everything is fine, you have nothing to worry about.
In respect of tenancies where internal or external decoration is involved, ensure that it is agreed in writing when the next major decoration is due.
In respect of freeholds it is equally essential to have a full survey, since you could be taking on anything from dry rot to animal infestation. Dry rot is always a favourite in beer cellars, where this is always water, very little light and restricted air flow.
Asbestos surveys, electrical wiring and appliance surveys or up to date certificates, heating, boilers and plumbing service records. Gas certificates, energy performance, all external play equipment, risk assessments and sewers and sewerage disposal.
Chapter 8 Insurance
Good insurance is vital, ideally with a company that specialises in licensed premises, your local Insurance Agent or Broker may claim to have the knowledge but don’t restrict yourself, shop around, talk to people in the industry. On many occasions large savings can be made, but again it must suit your proposed business.
Watch for the amount to be paid by you on any claim, accept a reasonable figure, this prevents silly claims being put in. If you have a genuine freehouse where you own the property it is worth considering a policy for the buildings and a separate policy for the contents, business insurance and public liability. If you have one policy for everything in the event of a claim the whole policy goes up, if you have two policies only one policy will go up, it is always worth investigating and asking questions.
If you are taking a lease or a tenancy, it may be full repairing and insuring, in most cases the insurance for the buildings is done by the pub company, unfortunately, in most cases you will find that you can insure the building for considerably less than the figure you are being charged. They have blanket policies and divide the costs up accordingly and one of these days I might meet someone whose policy is less than they can arrange privately.
However the contents, personal possessions, business and public liability are down to you under normal circumstances. Ensure that the valuation on any aspects of the insurance is the replacement valuation not the current value.
You must have a policy in place at the time that you exchange contracts, not on completion. Some Solicitors arrange temporary cover for this period but don’t rely on it.
Check with the vendor on any possible special requirements in respect of insurance, there may be exclusions on certain cover because the business has been subject to an excessive amount of claims on certain specific things; it could be that there have been a number of burglaries on the premises. This effectively means that it is a dodgy area to run a business and your insurance could well insist on very sophisticated security systems being installed before they give you full cover, if they have not already been installed. Also check the Warranties on any existing security systems.
Make sure that your insurance policy covers you for all the activities that you are involved in, take a copy of your operating schedule with you when you are discussing the terms and conditions of your insurance.
It also pays to insist on an Electrical Certificate a Gas Heating Certificate normally Corgi, get your Solicitor to ask for that, it tends to carry more weight. Your insurance company may insist that up to date copies are available as part of your insurance cover, especially from a fire risk aspect.
Finally, a big scam by a number of Pub Co’s is to use their compulsory Buildings Insurance Policy as an additional Revenue Stream. The Buildings Policy with most Pub Co’s can normally be bought for at least 15% less than they charge you and you have to accept their policy, in some cases they are now charging double the real cost. I had a meeting with a very disenchanted lessee, who had spent a fortune on refurbishing a leased Pub and the Pub Co were charging him £490 per calendar month.
The Morning Advertiser Newspaper also ran an article on Pub Co’s doing this, it is technically legal within the lease but sharp practice, before you sign the lease ensure that you are happy with cost of the policy and have assurances that it will not be used as a Revenue Stream that you cannot dispute or make alternative arrangements.
Note:- For anyone taking any form of lease, the rules on Energy Performance Certificates have changed, this is essential reading, please click on this Link
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