Having decided that you feel like a career change, what sort of business do you want?

Freehouse (Freehold)

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, unless you join and organisation like the BII (British Institute of Innkeeping www.bii.org): you may find it quite difficult to keep up to date with current legislation etc. A large number of freehouse owners 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 was changing completely in November 05 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 in November 05 very much to her cost – you need up to date information.

                                                                                     Cookseys DMP link to their web site  www.cookseysdmp.co.uk

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 have more people chasing their leases than they have available, if my information is correct, which gives them the whip hand. 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 £170.00+ 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.

Tenancy

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.

Pub Franchise

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 years 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.

Wholly Wet

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.

Food Backed

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 three immediate to hand publications:

1. Daltons Weekly (http://www.daltons.co.uk/)

Deals with all businesses and every newsagent recommends, but does not specialise in the pub industry;

2. Morning Advertiser (http://www.morningadvertiser.co.uk/)

A specialist guide to the licensed trade.

3. The Publican (http://www.thepublican.com/)

A further specialist licensed trade publication.

You can order the Morning Advertiser or the Publican through the newsagent or contact them direct from their respective Web Sites.

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.

Commercial Agents

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.