Dealing with the bank is an essential part of running a pub business. We offer some advice.
No one can say that banks don't have a grasp of the realities faced by someone running their own pub.
"Running your own business takes flair, commitment, sheer graft - and a product or service people want to buy," says the publicity from one of the high street banks, aiming to convince small businesses that it has the necessary depth of knowledge to be trusted with a publican's livelihood.
While some publicans may have their doubts that the same level of "flair, commitment and sheer graft" is demonstrated by some of the bank employees they come across, the fact is that for a tenant, lessee or freeholder, dealing with the bank is an essential part of running a pub. For the fortunate few, that relationship may only extend as far as banking cash and cheques.
However, the reality is that most pubs will also look to the bank for financial support at some time, in such areas as loans to develop the business or an overdraft facility to help manage cash flow
A bank overdraft remains the most widely used means of financing business growth. New research carried out by the Federation of Small Businesses (FSB) shows that two-thirds of businesses have used a bank overdraft to grow their business, while bank loans have been used by 45 per cent and a second mortgage by 14 per cent.
In context, however, the use of bank overdrafts needs to be balanced against the fact that most small businesses rely on the own resources to finance growth as far as possible. In the same survey, 57 per cent of businesses had used their own savings and another 33 per cent had used family savings.
While a fortunate 0.3 per cent had used a lottery win to finance their business, for most publicans that won't be an option. In order to get the most from your bank, you need to be able to demonstrate that you have a clear understanding and vision for your business.
Banks see businesses at their best, as well as their worst, and so their insight on what factors can help a business prosper may be valuable. The Royal Bank of Scotland offers the following advice to help you succeed:
- Research your market - Make sure you understand your market. Who are your competitors and what are your customers really looking for? What are your businesses' strengths - price, quality, service? And what is the competition doing?
Prepare a comprehensive business plan - Use all available sources of help, such as your bank, local enterprise companies and business shops. What skills, technology or finance do you need? How much money do you need to cover the cost of overheads such as rent, fuel and advertising as well as buying your raw materials? A good business plan will help banks and other agencies considering providing financial assistance to assess the viability of the proposed business. A great business plan is the eyes, ears, mind and soul of the business.
Monitor your cashflow - Make sure your business can generate the cash to help fund core operations and secure future growth.
Identify available grants - There are huge number of grants and other forms of government assistance available, but many businesses miss out. Equally, trading standards officers get regular complaints from firms who have paid hundreds of pounds to so-called "grant consultants" only to get information which is out-of-date, inaccurate or useless. Your bank may offer a reliable grant search service to help identify available funds for businesses.
Identify special loan arrangements - The government's Small Firm Loan Guarantee Scheme and Scottish Enterprise's Small Business Loan Scheme are two options open to qualifying businesses and supported by a number of banks.
Manage your sales ledger - Make sure you agree and document any credit terms. Invoice promptly and manage late payment. Research has indicated that late payment of commercial debt is one of the things small firms are most concerned about. You can help reduce the problem by making your payment terms clear; making credit checks on businesses you supply; chasing payments promptly and ensuring your invoices are clear, comprehensible - and go to the right person.
Use your overdraft appropriately - Use your agreed overdraft for working capital finance. It is often better to use loans, hire purchase or leasing to finance capital expenditure.
Make sure you have adequate insurance cover - Make sure you carry adequate insurance to cover such things as loss of profits, product liability, employer liability etc.
Don't take too much out of the business too early - Cash is your business's lifeblood. It will need reserves accumulated in the good years to see you through leaner periods. Pay yourself a sensible wage but ensure you have enough left over to service debt, invest in your business and allow for emergencies.
Think about franchising - For some, this can be an attractive way of starting out in business because of the degree of support offered by the franchiser.
The FSB research suggests that there is something of a love-hate relationship between FSB members, who include many publicans, and the banks. The findings showed that small businesses differentiate between their regular dealings with local bank staff, generally perceived as good, and the policies of bank head offices.
Following the recession of the early 1990s, there was criticism that banks had effectively turned their backs on the small business sector. Small businesses had borne the brunt of the economic slowdown, and the banks were said to be reluctant to invest in the sector further after being forced to write off significant amounts of money owed by failed businesses.
The situation seems to have improved to the extent that there is now more finance available for funding businesses development, although many also feel the cost is too high. The FSB commented: "under half of respondents, 44 per cent, stated that they were satisfied with bank support for their firm, and 49 per cent and 38 per cent respectively stated that they were satisfied with the availability of overdraft and loan finance.
"Nevertheless, 52 per cent stated that they were dissatisfied with the cost of overdraft finance, and 46 per cent stated that they were dissatisfied with the cost of loan finance."