Planning your finances

When planning to enter the pub trade, you of course need to plan your finances too. We take a look at the options available.

Investing in your own pub business, whether as the tenant or lessee of a pub operator, or by buying the freehold of a pub outright, will require you to have some capital of your own available. The amount you have to invest will help you to decide which is the best route for you. The basic options are:

• Tied tenancy:​ This requires the least amount of capital, and typically runs for three years, renewable annually. Tenancies are normally non-transferable, which means the tenant cannot sub-let to another licensee or sell the tenancy on, and the pub automatically reverts to the brewery if the tenant leaves. One positive side is that the brewery or pub company is usually responsible for major repairs and refurbishment of the property.

The tenancy will almost certainly be 'tied' to the brewer or pub operator who owns the pub. The 'tie' means you will have to buy beer, cider and possibly wines, spirits and soft drinks either from the brewer or specified suppliers, at prices which may be higher than you would pay to an independent wholesaler.

Tied lease:​ This will require considerably more capital. The lease will typically run for 10 to 20 years and can usually be sold to a third party after an agreed period. The lessee is usually tied at least for beer, but generally has more freedom to run the business as they wish. However, the lessees' obligations are usually greater as well. For example, a lessee is likely to be responsible for structural repairs to the building.

Free House:​ Requiring the most capital, the freehold of the pub is bought outright, and the owner is free to decide which products he sells.

Whichever option you decide to follow, it pays to take proper legal and financial advice before making any decisions. The terms and conditions of tenancies and leases vary considerably, and you need to be very sure what you are committing yourself to. The main pitfalls with tenancies and leases often only become apparent once the publican is running the business, a problem develops, and then realises nothing can be done about it because of a clause in the contract.

Where to go for finance​

The high street banks are the obvious source of finance for a prospective licensee looking to invest in a pub business. Most have small business units and specialist business advisers who will be able to discuss your plans.

In addition, many of the large national brewers and drinks brand owners also have funds available to invest in free trade pubs and bars, and it is worth considering this avenue when looking for investment.

The most positive side of such an arrangement is that brewery loans are likely to be offered at rates of interest which are much more favourable than a bank business loan. However, in return for the investment, the brewery will expect to 'tie' the pub to its products contractually, at least for the period during which the loan is to be repaid.

If one of the attractions of buying a free trade business is not to be obligated to a particular supplier, then a brewery loan will take away some of this freedom for the period it runs. On the other hand, a low interest loan can have substantial benefits for a business in its early days.

It is also worth bearing mind that a brewer or brand owner is interested in outlets which show its products in their best light. A traditional brewer, for example, may look most favourably on a pub where the focus is on cask ales, while some of the spirits brand owners have invested in independent style bars with a high percentage of spirit sales.

The Business Plan​

Wherever you go for finance, you will need to put together a compelling business plan in order to convince a lender that you are worth investing in.

Equally, if you are applying for a lease or tenancy you are increasingly likely to have to convince the pub company that you are the best suited of all the applicants to develop the pub's business. A good business plan is the best way to achieve this.

The plan will need to contain solid financial projection for the business, as well as well thought out and presented details of your plans for the business.

Bearing in mind that a successful pub often reflects the personality of the licensee, you will need to include information about yourself and, if relevant, your partner - your background, business experience and interests can all be used to demonstrate why you are the right person to run the pub.

Preparing a business plan from scratch can be a daunting prospect, but help is available. A bank business adviser, and even some pub operators, will have sample business plans which will give you an idea of the type of information which needs to be included. There are also training courses available, including the BII Business Development Certificate, which includes preparation of a business plan for a pub as one of its modules.

What to include in that business plan​

A bank or brewer considering investing in a prospective licensee will expect to see the following information in a business plan:

• a description of the pub, its site and location
• the competition
• a SWOT analysis - look at the strengths, weaknesses, opportunities and threats in connection with the pub you are applying for. It's a sure way of spotting a problem if you find the weaknesses far outweigh the strengths or if the opportunities are heavily outnumbered by the threats. It's very simple and very effective.
• your target market
• your marketing plans
• short and medium term plans for upgrading the building
• the operation and how you will manage it
• a one-year plan and cash flow
• a three year plan and cash flow

Source: Successful Pubs & Inns​

A note of caution​

There are a number of companies which offer financial and business advice to prospective licensees, and ask for a fee, often running into thousands of pounds, in return for arranging for interviews with pub operators and for sitting industry qualifications.

While there are a number of legitimate licensing agents who work with pub operators, most pub companies will also be able to give you information and advice directly on applying for tenancies and leases. Organisations such as the British Institute of Innkeeping will provide advice on qualifications, including the National Licensees Certificate.

If you are using a third party to obtain entry into the industry, it pays to be sure that you know exactly how much you will be charged and what you are getting for your money.

Tel: BII 01276 684449