Finance Focus: managing your money

Related tags Business plan Management Accountant

Even if you are experienced in the licensed trade, as a pub manager or behind the bar, taking on a pub of your own, a tenancy or lease, is a big...

Even if you are experienced in the licensed trade, as a pub manager or behind the bar, taking on a pub of your own, a tenancy or lease, is a big step.

While the basic operations may be familiar, being responsible for your own finances in a challenge in itself, and one that many newly self-employed people struggle to come to grips with.

For one thing you need to manage the transition from simply running your own personal finances to having business finances to cope with as well - muddling the two is a dangerous trap.

And even before you are offered a pub you need to have a clear business plan and some financial systems in place to help you get the surest possible start.

The following advice was put together by Fiona Robertson, Scottish & Newcastle Pub Enterprises' lessee support & development manager, and Steve Carter of Milestone Licensed Trade Accountants, one of the specialist accountants retained by S&NPE for its franchisees.

1. Make a plan

Write a business plan. A good business plan should fall into three parts:

a) An honest assessment of the business in its current state and how it compares to local

competition. This is usually known as a SWOT analysis, standing for Strengths, Weaknesses, Opportunities and Threats.

b) A detailed plan of the changes you would make, the reasoning behind this and the skills required. Do you have these skills or would you have to employ others? This is usually the marketing section of the plan

c) The financial section - what will it cost to put your ideas in place, what income do you believe the business should generate and will this meet your personal needs? To do this you will need to know:

  • What level of drawings (outgoings) you need
  • The commercially realistic trading figures for the pub (current and anticipated)
  • The gross profits and how you will set selling prices
  • What level of staffing you'll need (this will depend on how 'hands on' you are in the business). Staff costs along with your rent will be your two major items of expenditure
  • The costs to the business - utility bills, rates, etc.

Once you have pulled together the business plan you need to assess the level of investment required to support the plan as well as the initial working capital you'll need to get the business up and running. Ideally, you should budget for at least six weeks' working capital.

2. Consult the experts

Get as much help from experienced professionals as you can. Talk to people already in the industry, read trade magazines, surf the web and visit other pubs, but look at them as a publican might, rather than a customer. Remember - even a busy pub may not be a profitable one if there is no business plan and no control over costs.

Start interviewing potential banks. Most now have a small business section with specialist

advisors who will be happy to review your business plan and advise you on what banking facilities they would be willing to offer your business. Shop around for the best deal and make the most of the advice on offer.

3. Appoint a specialist accountant

Find an accountant who has experience of the

hospitality industry and preferably the pub trade. Don't be afraid to ask questions about the service they provide, their experience within the licensed trade and what they believe they can do to support your business.

Make sure all the bases are covered for legal requirements, for example registrations for VAT, self-employment, National Insurance payments and so on. Your accountant will be able to advise you on this and should be able to complete the

registrations if you ask them.

  • Decide on your trading entity. Should you be a sole trader, partnership or limited company? Take advice from your accountant and solicitor and make sure that any lease, legal agreements, trading accounts etc. are set up in the correct name.
  • Commercial advice - the provision and sense-checking of key information - gross profits, staff cost levels, cashflow etc. Again, your accountant, pub company area manager and stocktaker should all be able to contribute to this discussion.

4. Monitor trading performance against the plan

Usually in the form of monthly or quarterly management accounts this is an opportunity to improve profitability or gain early warning of a deviation from the plan. Most importantly - if things are not going according to plan, do something about it!

Have regular reviews with your accountant and area manager and don't be afraid to ask questions.

5. Get the right equipment

  • Buy a safe.
  • Depending on the trading style of the pub, purchase or rent or lease an appropriate till system. In large food outlets this may include electronic hand-held devices.
  • Establish facilities for credit or debit cards. This may include hand-held machines.
  • Set up an on-line banking facility to ensure you have up-to-date information at your fingertips.

Keeping your finances separate - top 10 tips

Pub lessees' business and personal finance are very closely linked as, unless they have a private income, it is the business that funds a lessee's personal lifestyle. Very often, lessees will be investing their personal savings, or those of a family member, into the business too. This can become even more complicated in partnership situations.These tips are provided by Steve Carter of Milestone Licensed Trade Accountants.

  • Have a separate bank account for business and personal expenses
  • Don't use a personal credit card for the business
  • Keep personal cash separate. Pay for business expenditure with cash from the till, not forgetting to put the receipt and change back in the till
  • Record all business expenditure and income as soon as possible after the event
  • Make sure the business has enough funding (be 'adequately capitalised') to meet the requirements set out by the business plan.
  • Think carefully before taking out personal loans. For example, if you take a loan from a family memeber, what would be the effect of not being able to pay it back?
  • Before opening a business bank account keep a record of expenditure so you can record it and claim back allowable VAT
  • Record all free drinks in a book so the stocktaker can allow for this
  • When purchasing food, separate business stock from personal purchases and have the information available if questioned by HM Revenue & Customs
  • Put money away in a deposit account, not least to cover VAT and income tax liabilities. Also set up budget accounts with utility providers and pay for these services monthly.

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