Pricing a pub: Preparing for valuations

Related tags Real estate Christie & co

You've decided to sell your pub and have called in an estate agent to do a valuation, but there are still lots of questions you need answers to.Paul...

You've decided to sell your pub and have called in an estate agent to do a valuation, but there are still lots of questions you need answers to.

Paul Davey, managing director of property agent Davey & Co, answers your questions on pub valuation.

My pub is up for sale and an estate agent is coming to do a valuation. What does it involve and what factors do they take into account?

The valuation will usually be conducted in three parts. Firstly you will meet the valuer to provide him with an overview of the business - i.e. how long you have been there, how it is performing currently in relation to the past - what your reasons are for looking to sell and when you'd like to be out.

Secondly, you will accompany the valuer around the premises, showing him all trading areas, ancillary accommodation including the kitchens, beer cellar and so forth, in addition to the private accommodation and the outside areas. After this the valuer will want to go through your accounts for your last year-end and management accounts if you have any. The principle factor being considered will be the trading performance and profitability of the business, with due account being taken of the potential of the business, style of operation, standard of presentation and, of course, location.

Is there anything I need to prepare for the agent valuing my pub?

Ensure you have the accounts available for your last full trading year and preferably the previous two years. It would be useful to have copies of your VAT returns since the last year- end accounts and any management figures you have to provide a complete up-to-date picture of how the business is performing. A current staff list would also be useful, showing the names of all employees, roles, start dates and rates of pay.

Is the valuation of a pub worked out differently between a lease and a freehouse?

The method of valuation is exactly the same for a tied lease or free-of-tie lease as it is for a freehold. The difference being the property, or bricks and mortar, element will not be taken into consideration with leasehold businesses and the multiplier applied to the profit to determine value will vary between these different forms of tenure. A valuation will take account of the goodwill, trade fixtures and fittings, and the freehold property if applicable.

It was mentioned that my valuation is based on a multiple of reconstituted profit. What does that mean?

The reconstituted net profit - otherwise known as the adjusted net profit - is the figure the valuer arrives at by adding back to the net profit shown on the profit and loss account overheads which are not operationally specific - such as depreciation - or are peculiar to how you operate or have financed the business.

These would be overheads which would not be incurred by owner-operators working in the business full time and it would be assumed the business would be bought for cash without mortgage finance.

This would then allow a purchaser to see the operating profit from which they would be able to service a mortgage if necessary, and to pay managers or additional staff if they chose not to run it full time, or at all, themselves. The multiple of this adjusted net profit would be determined by the tenure of the property - freehold or leasehold - and current demand in the market for the size and style of business being assessed.

If, for example, the multiple used is three, this would produce a value based upon three years purchase - which means a buyer will see the purchase price paid returned to him over a three-year period, assuming a straight line profit projection of the current adjusted net profit figure. Six years purchase means a multiple of the adjusted net profit of six, and so forth.

Is there anything I can do to make sure I get the best value for my business?

Plan ahead. If you are looking to buy now, go into it with an exit timescale in mind - usually between two and five years. If you are an existing owner, remember that the profit will determine its future value so plan to build this up as far as you can the year before you want to get out, not just the current trading period.

  • If you have queries on any subject, from what to do with the layout of your venue to what to look for in a property agent or how to increase your property's value, please email wnzrfj@gurchoyvpna.pbz​.

Pictured: Many factors are used to help arrive at a valuation for properties such as the Moat House in Taunton, Somerset, (pictured above), on the market at £230,000 leasehold through Christie & Co, 01392 285600.

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