Cashflow

With the vast majority of business worries coming down to money, keeping a tight rein on cashflow is fundamental to the success of your pub, writes business manager Andrew Turzynski.

Anyone merely dreaming of running their own business should stop now, before the reality kicks in. In fact, the key to success for a new business start-up is to get real - before reality gets you.

The vast majority of business worries come down to money, so it's no coincidence that good money management is the key to success You may also be interested to know that the single biggest reason for the failure of a new pub venture in its first year has little to do with draught flow, and a lot to do with cashflow.

Cashflow management is a skill that anyone involved in a small business - and especially a cash business like a pub - must learn. Lesson one is that cashflow begins at the beginning. Financing your venture into pub life need not be overcomplicated, but it is a specialist field. If you work with commercial finance specialists who are familiar with the trade, you'll have more chance of getting the right funding deal, and you should get some vital support along the way.

Don't get all emotional and buy a pub just because you've fallen in love with it.

Your decision might be a very personal one, but if the figures don't add up you'll only get hurt! Forget the romance of the thatched cottage, and stick to the cold hard facts of how the business you are interested in buying is doing under its existing owners.

The best place to look for a business to buy will be specialist trade magazines, such as The Publican Newspaper, and of course, the property pages of thePublicann.com. Register with the specialist estate agents in the market. Glean all the intelligence you can, at every stage.

When it comes to the deal, take a sober look at what's on the table, once again with the assistance of professionals, such as commercial finance brokers, who know the trade.

Ditch any preconceptions about the kind of life you are getting into. Making a success of running a small business involves unrelentingly hard work. A pub brings its own specific challenges, from unsocial hours to unsociable customers. If you're not cut out for it, the inward cashflow will suffer - and so will you.

To get started in business you will almost certainly need a cash stake. With limited experience of pub management, or taking on an under-performing pub, you might get up to 75 per cent of the bricks and mortar value as a commercial loan. With more experience a loan of up to 70 per cent of the pub's value as a going concern could be available. This includes goodwill, fixtures and fittings, stock and equipment, and could be a much higher figure. Whatever, you will have to make up the difference between the amount of the loan and the purchase price.

Many would advise you not to sell your house to cover this amount - and not to overstretch yourself however you do it. Much business success - and effective cashflow management - is about getting off on the right foot. You are more likely to secure better start-up finance if you have a good track record in the business. "Doing what you know" is likely to increase your chances of success when setting up a business, but it is worth noting that some funding arrangements - such as a brewery loan - carry obligations that may restrict your flexibility to develop your business as you wish.

Ultimately, the amount you can borrow initially will depend on a specialist business valuation taking into account current trade, your own business plan and your experience.

When researching your pub purchase, remember that things are not always as they seem - particularly in a cash business. Gross profit figures can be revealing. They should be 45 per cent to 55 per cent; if they are not it could be a sign of the wrong kind of cashflow - cash flowing out of the business, that is.

Investigate turnover by obtaining copies of accounts, VAT returns and a certificate of turnover - and ask incessant questions of the vendor if you have any doubts. If turnover is based on illicit drinking, for example, you need to know.

Look behind the scenes and down in the cellar too. Look for stock that may have been hanging around for a while, and don't buy any stock that you can't sell.

When mapping out the finances and development of your business, plan for a "build up" period before your projections for the business are achieved - particularly if you are investing a substantial sum. During this time - you don't know how long it will be - you will need some contingency funds to live on.

Any major refurbishment, building or re-equipping of the business will probably require bridging facilities, as this amount would be withheld from an initial mortgage advance until after completion of the works. This could have major implications for your cashflow and financial projections.

Plan for the bad times as well as the good. Know your bottom line for survival when, as is inevitable, the market hits a downturn and business failures increase.

Research your ideas for getting more business through the door so that, for example, you know there is a market for the kind of food you are planning to serve.

And have you costed in the wages for the calibre of staff needed to make it happen?

Finally, running any business is a harsh baptism in the realities of commercial life, but it can also be everything you dreamed of.

One customer of ours was a pub tenant who got so fed up with rent increases based on the success that he had made of his pub, that he went out and bought himself a run-down unit making £23,000 profit on a turnover of £100,000. He doubled the profit in the first two years, and now he's on to his second.

Commitment, ideas and passion lie at the heart of his success.

But could he have fulfiled his vision without close attention to the cash coming in and going out of the business at every stage?

Dream on!

Cashflow tips​

Many a successful publican will happily share with you their day-to-day tips on cashflow management. Some favourites include:

• Make sure you've got enough money to stock your cellar when you move in, but don't overstock it - you don't want to be lumbered with out-of-date stock that you can't shift or recover the costs of
• Don't give your profits away - the cost of a round for customers is all loss - and don't drink them either
  Don't run up a big credit account on business expenditure
• Check all invoices carefully - suppliers do make mistakes - and keep a close watch on direct debits too
• Try to get your takings in the bank every day. Some pub owners also like to try paying some bills with cash, to avoid a sudden backlog of cheques waiting to be paid in by suppliers
• Always keep enough change - around £350 is usual - on hand to ensure that the pub can run properly. You don't want to lose out on sales - and watch out for customers putting your whole stock of pound coins into the slot machines

Further information​

Andrew Turzynski is senior business manager with First National Commercial Banking. Anyone interested in finding out more about financing a pub purchase can contact First National on 0208 861 1313.