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 businesses, 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 and hotels 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 advisors have an uncanny knack of knowing within a week when a business 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 Institution of Chartered Surveyors http://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 business 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 business 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.