Accounting for the slump in trade

Licensees facing dwindling cash reserves and piles of bills may feel at a loss. But, as Noli Dinkovski finds, they could do a lot worse than get an accountant and a stocktaker.

Picture the scene — a fresh-faced licensee opens his doors to the public for the first time. It's a new start in a new career, he's got money in the bank, a sound business plan, and has invested heavily in making his proud new pub the best-looking in town.

Six months down the line, things aren't going so well. Trade may be ticking over but cash reserves have dwindled, there's a heap of fast-approaching out-of-date stock in the back, invoices are building up and an Inland Revenue (IR) payment is looming. The knee-jerk £10k spend on kitchen equipment last month is starting to look rather foolhardy.

Such a rapid downturn in fortune is a sadly all-too-common scenario in the licensed trade these days. Yet, in many cases, it's one that can be avoided if a licensee goes that yard extra and gets help from the wide array of professional services available. And near the top of any licensee's list should be an accountant and a stocktaker.

"All licensees should have an accountant and stocktaker," says Martin Roslyn, managing director of Roslyn's Accounting Company. "Getting the books right is as important as selling a good pint of beer."

According to Roslyn, those new to the pub trade are often the ones most in need of advice and support. "It's very easy, when you've got a bit of money and you've found a pub you've set your heart on, to let your heart rule your head," he says.

"The important thing is that once you've worked out a business plan and P&L and cash-flow forecasts, you stick to them. If you buy things that aren't planned for, your business will ultimately pay a much greater price further down the line."

Looking at costs throughout the business can help free up cash when times are hard. It's important to get pricing right, says Roslyn, by monitoring the opposition.

"If a pub is selling a particular beer for £2, and you're buying it in for £2.15, don't try to match them — it only leads to trouble," he says.

How much you are buying is equally crucial to business well-being. Over-ordering stock is a common problem in the licensed trade, says Scott Hulme, director of tenancy at stocktaking specialist Venners.

"Our sophisticated software enables us to provide licensees with all sorts of analytical data to help decide whether they are buying stock unnecessarily, tying up vital capital in the process," explains Hulme.

"We can also monitor stock that's reaching its best-before date and suggest to the licensee they might want to promote it."

Stock consumption is frequently overlooked. If, say, a pub buys in four gallons of beer but only three gallons are sold through the till, that missing gallon should be investigated and any endemic problems rectified.

"As soon as that beer is spilt, you you can never get that money back," says Hulme. "So attention needs to focus on why it was spilt. Does it mean staff need training on dispensing a pint of beer properly?"

Staffing itself is another cost that should be scrutinised. Take away beer cost and rent, and staff wages are the next highest cost to a licensed premises, says Roslyn.

"Very often a licensee will get a team of staff in, say, betweeen 6pm and 11.30pm to cover the busy period. But really they don't all need to work these hours — some can start at 7pm and finish at 10.30pm."

Sometimes, of course, no single piece of advice can help safeguard a business. If things do turn sour, licensees should face up to problems with their accountant, and even more importantly, their bank manager.

"Bank managers are the first ones who can help out in the short-term — that's why you should make sure that you know who they are and keep in regular contact with them," says Roslyn.

"If you don't keep them informed, they aren't going to help, because all they can see is that you are overdrawn."

Similar lines of communication should be in place with the IR. Jean Hill, director at Hudson Deane accountants, says whether it's tax, PAYE or VAT, falling behind with

the IR is a classic problem among licensees.

"If you find that you're encountering difficulties, talk to them and try to get an arrangement in place," says Hill. "Over the past couple of years they've been more sympathetic."

But Hill believes that in recent months the IR is becoming less compassionate.

Reading between the lines, she speculates that funding for what was the Business Payment Support Service is starting to run out, and the change in attitude is a consequence of that.

With help not guaranteed, Hill advises the best way to avoid difficulties is to set aside your IR payments in a separate bank account.

"It requires discipline, but it's the best course of action," she says.

It's these pearls of wisdom that separate the type of accountant who just runs their eye over the books every so often from one that can really make a difference to your business.

Roslyn believes a lot of accountants in the trade aren't giving correct advice and support.

"Many aren't trade specialists, which is a problem because they don't appreciate things such as gross profit and wage percentages," he says. "The types of licensees who need help most are often those with one of the big pubcos.

"They're starting to struggle and are not making as much money as they should, and their accountants aren't doing enough to help."

It seems that getting advice from the right people is as important as the advice itself, and trade specialists are clearly a very good place to start.

10 golden rules of stocktaking​

• Check all goods in and out

• Ensure an up-to-date pricelist is on view to all staff and customers and make staff aware of prices

• Record any products that are sold at a price lower than the full tariff price

• Use the correct glasses and measures — if introducing new glasses, check capacity

• Train the staff to dispense draught beers, wines and so on, without loss or waste, and keep all wastage to a minimum

• Conduct regular spot-checks

• Pay for all goods that are consumed

• Cash registers are only as good as the individual operating them

• If you have a stock problem, suspect one of the three people you trust the most

• Ensure you understand the stock and till reports

Source: Venners​

Don't skimp on insurance​

Having a sound business plan is all very well, but have you correctly valued your buildings and contents insurance?

"It's vital to check your policy to make sure everything is included and it represents the true value of your business," says Ross Edgar at trade insurance brokers Morgan Richardson.

"Do regular checks. A simple 10-minute walk around the premises every now and again to make sure everything is covered and there are no hazards could prove invaluable."

Another often-overlooked aspect of insurance, says Edgar, is business interruption coverage.

Morgan Richardson offers 24 months' indemnity as standard, whereas many brokers only cover 12 months.

"If you look at all the pubs affected by the floods, many took more than a year to get back up and running," says Edgar. "There's usually a delay before building work starts — there's the redecorating to consider, staff, and so on. Some premiums may be cheaper, but do they only cover a 12-month period? Are legal expenses covered? Has public liability limit been reduced? For what may be a small price increase the difference can be substantial."

Terry Osborne, at Terry Osborne Insurance Services, appreciates nobody likes paying for insurance, but everyone regrets not checking or getting a policy right in the event of a problem.

The trade specialist claims to look at each case at renewal, checking through sums insured and policy covers to ensure it still meets market requirements.

"The cheapest insurers are not always best and, in the event of a claim, specialist advice will always shine throu