Letting in the profit

By James Wilmore

- Last updated on GMT

Related tags Value added Profit

One of the biggest missed opportunities for many licensees is the extra income and added value letting accommodation can bring to their business.Not...

One of the biggest missed opportunities for many licensees is the extra income and added value letting accommodation can bring to their business.

Not only does the extra income increase turnover and profitability - the actual market value of the business can also be boosted.

Whether the value of the business is assessed by a multiple of turnover or a multiple of profit, adding letting accommodation increases market value, as the multiple used can be greater with letting accommodation than it is without.

The increased multiplier, certainly in the profits method, which is the method most valuers and investors rely upon, can improve considerably, especially if accommodation accounts for more than 25 per cent of turnover.

All too often my colleagues and I visit pubs where the owners recognise the potential to add three or more letting bedrooms, but have not done so.

This is a huge missed opportunity. Apart from the initial refurbishment, conversion or fit-out costs, virtually all of the income derived from the letting accommodation goes straight onto the business's bottom line.

This is because there are usually no significant running costs associated with providing this potentially lucrative additional facility.

Obviously this does not apply to all businesses in all locations. Owners need to seek advice from a recognised agent in order to assess the merits and, most importantly, the uplift in value adding accommodation may have on their particular business.

The standard to which the letting accommodation is completed, the choice of a contemporary or a more traditional style and finishing touches can be very important - as can the rate you charge.

So do your homework and take advice before rushing in. That said, having checked with my colleagues, we can reveal that in 80 per cent of cases where we advised on this particular point, the addition of letting rooms was considered to add significantly to future value.

Case Study: The Princess Royal

At Fuller's pub the Princess Royal in Farnham, Surrey, weekly turnover has increased by around 40 per cent since a project was completed in January to add 21 bedrooms.

Jonathon Swain, quality inns general manager at Fuller's, said: "We did some research and realised there was a shortage of quality rooms in the Guildford area. We saw this as an opportunity to add to the offering at the Princess Royal."

The 21 rooms are separate to the main property, but the reception area is in the pub.

Mr Swain added: "It's been a significant investment, but it has been worthwhile."

Related topics Property law

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