Raising A Glass To The Pub Trade

Running a pub sounds like living the dream. Whilst it can be a satisfying way to earn a living, it is a lot more complicated than just pulling pints.

There are approximately 48,000 pubs in the UK and indeed the public house is an established part of British life (dating to back to the reign of Richard II in the 1390’s if you must know). Whilst it sounds like a charmed lifestyle, the differences between life either side of the bar are marked. Yes, a landlord does need a certain amount of charm and charisma but without a lot of graft, those fringe qualities would be for nought.

Perhaps the best advice for any Service-leaver interested in running a pub would be to go and work in one for a while and gain a bit of experience. This will at least give you a hint of the hours you’ll need to put in, as well as some of the less glamorous chores you’ll need to do behind the scenes – and as you come closer to realising your dream, help you to decide what type of pub you’d like to run.

One of the skills you’ll need is an eye for market opportunities. You need to pitch your offering to match the local market. The location of your pub will often demand that you run it in a certain way, so if you want to run a trendy wine bar frequented by evening city drinkers, you’re unlikely to be located on the Cotswolds. In other words you need to carefully observe your competition, demographics, footfall and ideally, identify a niche in the local market to call your own.

Again, depending on the type of pub you choose to run, you’ll also need to be able to manage staff with a variety of roles (in drinks and catering). These days, pubs are often diversified businesses that serve food or have some other speciality such as real ale or a family focus.

Perhaps the biggest decision will be whether you run a freehold or leasehold pub. This may well depend on how much money you are prepared to invest but there are other factors to consider as well. Creating a business plan will help you to crystallise your goals and give you a realistic idea about what resources you can put into the venture. Naturally, any brewery or pub company you get involved with will also want to see it.

Leasehold

Leasehold pubs are usually owned by either a pub company or brewery and so are not strictly independent businesses. In some senses this is a similar model to becoming a franchisee. This provides an element of security as well as expertise to tap into and is perhaps the reason why the majority of pubs in the UK are run in this way.

What is for sure is that it’s the cheaper option since you’ll only be purchasing the business (not the actual pub premises) and indeed, whatever happens, you’ll be able to sell it on that basis too, having rented the pub in the meantime. You get to keep the profits except for those from games machines which are shared between you and the pub company or brewery.

A second form of leasehold exists called a ‘tied leasehold’. This means that you are contracted to purchase a large percentage of your drinks from a specific brewery, which of course means that you’ll be unable to ‘shop around’ to take advantage of better prices or brands. Having said that, it’s still a good first move into the pub trade and although it might mean more expensive beer, it can encourage landlords to diversify into food or wine to shift the emphasis of the business and yield better profits. Such a shift can prove successful and tied leaseholders have been known to sell up and use their profits to purchase a freehold pub.

Freeholder

Becoming a freeholder requires a much larger investment since you’ll be purchasing both the pub business and the actual premises but the upside is that you’ll have complete control over all aspects of the business. Clearly, success could mean substantial rewards both from the business and appreciation in value of the building. (You should get a full buildings survey and ensure that it meets fire safety and environmental health regulations.)

Costs

Pub tenancies are likely to vary depending on the location and size of the pub but estimates range from £10,000 to £70,000. This will include a bond (deposit) that will be used to finance initial costs, fixtures and fittings and working capital and covers you if you can’t pay the drinks bill.

Rent (or lease costs) are usually paid monthly or quarterly in advance. In suburban London you can expect to pay £12-£20 per square foot. The rent is generally estimated at about 12% of turnover.

For a freehold pub, the outgoings are likely to be similar but for the extra cost of the premises you’re purchasing.

Legal Requirements

You must be over 18 years old, have no criminal record, prove that you are a ‘fit and proper’ person and understand your legal and social responsibilities.

As well as that, a pub must meet four licensing objectives: prevention of crime and disorder, protection of children, public safety, and the reduction of public nuisance. Designated premises supervisors are responsible for ensuring that the pub meets these criteria.

Candidates are advised to hold a British Institute of Innkeeping (BII) National Licensee’s certificate which will help you in the application process. (If you plan to develop the catering side, you will also need to contact the local environmental health department to ensure you meet their standards.)

Making Money

The size of the pub and where it is located will also impact how much money you make. The net profit should be around 20-25% of turnover.

For a tied lease you can expect profits of around 20% of turnover excluding VAT, rising to 25-30% for a free of tie lease. Tied leaseholders should see a profit on draught beer of around 50-55% and 55-60% for bottled beer rising to around 65% if you are able to shop around for more competitive suppliers.

If you can invest in a freehold (freehouse) you’re more likely to make a larger profit since you’ll be paying a mortgage and not rent. If you come to sell the business it will likely be at a healthy profit and your property will probably also be worth more than when you bought it.

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