Valuation of a pub

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Hi all,

Recently moved back to England after 7 years of owning/running a bar in Majorca.

Looking to buy a freehold pub in London/Essex and would be grateful if anyone knows how on Earth a valuation is obtained.

Having spoken with many agents and scoured the internet it would appear some of the prices are just made up, especially if they have rooms attached.

If anyone has experience in this field I would be grateful of any advice you may be able to provide. The bottom line is I do not want to pay over the odds through being naive.

[Scott-CopyandDesign]

I'd be careful about buying a pub in this current economical climate. Pubs all over the UK have been closing down at an alarmingly fast rate over these past few months.

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Thanks Scott,

Been doing some research and that is why I think the water is further muddied with some of the valuations.

[Radrich]

Your only route is to ask for the last two years VAT returns and look at the turnover, forecast it forward in the current climate and obtain a guesstimate. Then phone at least two to three companies that specialise in selling pubs, like Christies and ask them what the average price was paid for a leasehold/freehold as a percentage of that pubs annual turnover. They keep stats like this believe it or not (not common knowledge). Apply this factor to your guesstimate. Lets say the pub does £450k pa and the factor is 0.26. The you should not pay more than £117,000 incl fixtures and fittings (use an independant valuer for the F&F and any stock))



If someone can't give you a copy of the last two years VAT returns then run a mile, unless you really can trust the figures given.

[KidsBeeHappy]

Valuations should be based on the books, and the books alone, forget property values etc.

Probably a number of the pubs will have have values not substantiated by their books. It may be case that the pub are only disclosing part of their income, it may not. The only way to truely establish what a pub is selling is if you get a proper pub stock-taker to look through the brewery invoices, this at least should give you a fair idea of the alcohol taken by the pub, any pubs not fully disclosing, as you probably know, will have a high "wastage" figure.

I would offer what you think reasonable, i know a pub thats been on the market officially for 10 years, the owner can't afford to continue, and can't afford to sell. Knows that the pubs losing money, but also knows that he won't get a mortgage off the back of other income to buy a new house. He's in catch 22.

[SFD]

Valuations should be based on the books, and the books alone, forget property values etc.

But based on that method then both a freehold and a lease would cost the same, which cannot be right.

[My Owl 1]

My family had a pub in North Wales and with the transfer to the new owners we had to list everything that was going to them. My tip would be to ensure you know what is being transferred to you when you find a good pub. And get good legal advice.

Best of luck.

Avril :)

PS if you would like to contact me re electricity, gas and phone rates I would be happy to put a proposal together for you.:cool:

www.savemoneywithus.co.uk

affordable utilities for home and business.

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Some great advice already - sincere thanks..

The leasehold vs freehold debate is an interesting one as some leaseholds are more expensive than freeholds, without any real substance.

Did ask a couple of agents also their valuation technique and you guessed it; they were not forthcoming with any ratios ??

Thanks again.

[activehedgehog1]

If your getting any type of mortgage ion it then they will do a valuation. You probably also just need to pay a bit up front and get a valuation from a surveyor who is experienced at licensed premises.

The thing with freehold, especially in the current climate is that you have to consider alternative use e.g. the actual site value if developed on.

[KidsBeeHappy]

But based on that method then both a freehold and a lease would cost the same, which cannot be right.


It is entirely right. Because if you own the pub, you have bought the business until you chose to sell it, or for ever. But if you have a ten year leasehold, you only have an income stream for 10 years, or if you sell in five years, you are selling only five years worth of potential business to your buyer.

Basing a valuation on the books doesn't simply mean offering them 3xprofits, or 1xturnover. It means taking the income/profit stream for that business and determining a value based on the future profit stream. The difference with leasehold and freehold is the length of time for that future income stream, and that will give you different valuations.

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Thanks all,

So with house sales we can go on mouseprices, zoopla or right move to see what houses sold for - dont suppose there is a similar website anyone has come across that would show what a pub/business has sold for ???

This would at least help me to benchmark value..

[RobertG]

Get the last few years accounts and instruct an accountant to look at them. Make sure these are what were filed with HMRC and Companies House if Ltd. Look at the trend over the years. Has turnover and gross profit increased or is it reducing. Look at all the overheads and see if it is actually making money. Visit the pub at various times and see how busy or not it is.

Find out if the owners have been the subject of any enquiries over the last few years by HMRC for tax or VAT.

If the figures look good what are the reasons for selling.

Make sure before you do anything you take legal and financial advice.

[Radrich]

Accountants to try that specialise in the licensed trade are

Milestone (MSLTA Ltd)
Austens
Robin Breach
MBA Systems
Pub Accounting Systems

For valuing stock and F&F use a member of the association of Victuallers

For the building use a member of RICS but it is advisable to conduct a full structural survey (especially if looking at a fully repairing lease) and not just a drive by valuation.

Always seek sound professional advice, pubs are one of the easier business's to get into and the hardest to get out if you suddenly need to.