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Working out cash profits for lessees In a Morning Advertiser report on Punch results (3 May 2007), it is stated that "Punch lessees saw average...

Working out cash profits for lessees

In a Morning Advertiser report on Punch results (3 May 2007), it is stated that "Punch lessees saw average earnings increase by 2.6%

to £36,000 per annum, including the £8,000 live-in benefit".

What is not understood by many commentators and lessees, however, is that £36,000 does not equate to the cash profits available to the lessee.

Excluding the accommodation benefit, average accounting profits are, therefore, £28,000. From this figure, tax needs to be deducted and, far more importantly, capital expenditure, which is the responsibility of the lessee, and is not deducted in computing accounting profits.

For example, after he or she has deducted tax, the average lessee must also pay for items such as carpets, kitchen and audio equipment, garden furniture and a myriad of other items.

On average, many City analysts reckon that managed pub companies pay approximately 6% of their turnover on capital expenditure of this nature.

On this basis, there is likely to be very little cash left over for the lessee once this capital expenditure has taken pl

in the position, therefore, of making "accounting" profits, but having to choose between capital items such as carpets and microwaves or an income for themselves.

This failure to understand the difference between profits and cash flow, and its ramifications for individual businesses, needs to be made clear by pubcos, and is at the heart of many serious business problems.

Tim Martin

Chairman, JD Wetherspoon, Watford, Hertfordshire

Now calculate your real profits

I write regarding the article by Ali Carter (Morning Advertiser, 3 May) headlined "Calculating your profits".

I refer to the section headed "When the chips are down", where Ali Carter refers to a "generous employer" allowing his/her staff a glass of coke, and working out the £2,184 loss in takings over a year.

Encouraging employers to restrict staff benefits is not necessarily the best management practice.

It seems unlikely that staff would choose to pay for drinks at their work, so the real loss of profit would be the cost price of the drink, which, if coming from a soda gun, would be a matter of pence. (In the context of the number of drinks sold in the establishment, any glass-washing and ice for these six drinks a day would be negligible.)

Secondly, this calculation overlooks the essential role of staff in any operation and, indeed, profits.

Good staff morale equals good service, which is good for business. If just one staff member's pleasant attitude - as a result of being happy to work at a place where they can have a free soft drink - meant one customer would return regularly, this customer's revenue would be worth more than any savings made by cutting out free soft drinks to staff.

Yes, it is important to be aware of your GPs, but small GPs for a full venue will give you higher profit than high GPs on an empty venue.

Hospitality staff are valued less in Britain then perhaps any European country. If establishments are to raise standards and profits, then the employer must understand there are important business factors beyond those that can be worked out on an excel spreadsheet.

Philip Wood

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