Opportunity to buy a pub lease.

[01smartc]

Hi all,

Ive been offered a business opportunity of buying the lease on a pub. Ive been all through the paperwork and accounts and it is currently running at about £1k clear profit per week. (and its not busy yet, got a big beer garden so will pick up in summer)

The lease has been offered to me for £2k and I need to make my first beer order upfront which is about £3k.

The current lease owner has a manager in there that deals with all the day to day running etc. The brewery have also said if someone new is going in then they will do a full refurbish and reduce rent to start with.

Is it just me or does it seem to good to be true?

Would appreciate some comments or things to check I may have missed

Cheers Chris

 

[Root 66 Woodshop]

From the outside perspective, you have to ask yourself why would a brewery willingly spend money on a new tenant, when it's struggling to keep old ones?

I guess pending on the area as such, majority of pub's are being sold now, people just can't afford to keep their business running any more... The only ones that appear to be surviving are the ones that offer pub lunches, full menu's etc - "The local" as they use to be is a thing of the past now unfortunately.

 

[David153]

currently running at about £1k clear profit per week

By 'clear' have you factored in rent, rates, tax, vat, accountancy, insurances etc rather than just sales less cost of beer?

 

[01smartc]

Yes that's factoring in everything, rent, rates, wages etc.

The current owner has 2 pubs, and has handed in his notice on this pub to concentrate on the other. So its not a case of the pub is doing badly, its just that he cant run both at the same time.

Chris

 

[David153]

If it is easily making £50k + per year in profit why would he get rid of it? He could emply somebody to run it on a very healthy £30k and still take a nice profit himself.

Do you have the last 3 years full accounts to check over?

 

[David153]

Is that lease of £2k per month - and not factored into the £4k per month profit?

i.e. if you take on the lease and pay £2k per month, your profit will be £500 per week?

 

[Philip Hoyle]

The current owner has 2 pubs, and has handed in his notice on this pub to concentrate on the other. So its not a case of the pub is doing badly, its just that he cant run both at the same time.Chris

You said he already had a manager in the pub, so he's not running it himself, so why can't he keep it. On that kind of profit (if real), he could easily afford a second senior/manager type of person if the need is there.

Sorry, but it just doesn't stack up. Check the figures VERY carefully. Check at least 3 years worth of annual accounts prepared by a qualified accountant. Also check the accounts against VAT returns submitted. Check with suppliers that they will supply you at the same margins as at present - some may offer discounts at the moment for bulk buying for two pubs that you wouldn't be eligible for. Also check any tie in with the brewery for potential price increases and check what your liability will be with the lease i.e. future rent increases, repairs to the property, length of lease, lack of early termination, etc. As for the brewery doing a renovation, take that with a pinch of salt, get it in writing, and also a confirmation that they won't hike the rent massively once they've done it!

Can't remember if it was on this forum or another I frequent, but not long ago, there was a poster who was about to be bankrupted because his pub lease was a "tenant repairing" lease and he found himself liable to spend tens of thousands on the pub building!

 

[Strontium Dog]

One thing to be aware of with multiple outlets is expenses for the pub you are looking at being met from a different branch.

This artificially inflates the profits of the business you are looking to buy.

 

[Deleted member 138423]

Free house or tied? Be very very careful as has been said! Pubs are notoriously risky businesses - I had my accountant look over the accounts of a pub proposal for me before I trusted the figures but the reason I didn't take it ( free house ) was that the brewery were arses and the rent would have gone UP and not DOWN, so get any proposals in writing first before you commit! If all seems well after these points, then good luck!

 

[Fitness Bug]

If you search my previous post you will find a few valued opinions on their too.
I have now made my mind up and have since withdrawn my interest in the pub, This was also a lease, I had all the figures etc and it looked as if it could turn a good profit, That is until I realised that the "business model" provided from the pub co is only that, A model, This looks at what it should be doing and not what it was or is.
Be very careful!
The way I see it now is that you are buying a lifestyle for the lease term, Not a business!
After the lease term is up you have nothing to sell, Just hand the keys back and adios im afraid.
Dont get me wrong, Some are actually making a do, not a lot tho, And if you are tied to brewery then your price per barrell is almost double the going rate, And now it is almost impossible to "skim" the till/beer as they are now all fitted with flow meters, so even if you where to buy the odd keg outside of the brewery its only a matter of time before they find out and I think the fine is approx £300!!
The mistake the brewery made with me was giving me too much time to go through evry line, This is due to me wanting certain repairs etc, In the end I just saw it as a black hole and one that at the end would leave me full of debt!

Hope this helps

 

[Wasworkinallweek]

Just curious hows the other pub doing

 

[patientlady]

Hi all,

Ive been offered a business opportunity of buying the lease on a pub. Ive been all through the paperwork and accounts and it is currently running at about £1k clear profit per week. (and its not busy yet, got a big beer garden so will pick up in summer)

The lease has been offered to me for £2k and I need to make my first beer order upfront which is about £3k.

The current lease owner has a manager in there that deals with all the day to day running etc. The brewery have also said if someone new is going in then they will do a full refurbish and reduce rent to start with.

Is it just me or does it seem to good to be true?

Would appreciate some comments or things to check I may have missed

Cheers Chris

Boxingbarmy has knowledge please listen to him. What area are you in ? If its too good to be true it is. This will be a fully tied lease or maybe free on wine or minerals dependent on turnover. Are the figs up to date or last years? Ask to see the last three/four Vat returns. Where is the pub, good location or destination? 1K profit per week it must be booming, I do not know any publican who is remotely making that kind a profit. I know quite a few who are losing that tho! As said above if the net profit is 1k run by a manager why would you give the keys back - I suspect you would not.
Take on a 3 months tenancy and see how you get on. If he has had the pub for a short time he has probably had it on TAW and been paying £100 per week rent tops!
Believe me, the pub game is the easiest business to get into and the hardest one to get out of

 

[Mpg]

I used to be senior management in a Very busy pub a few years back. Brand new building T/o £26k per week. Black friday the first year we took £17k just on the friday over £40k for the week


Its now closed

Run away
Run
Run
Run
Run away

 

[cts1975]

If it is easily making £50k + per year in profit why would he get rid of it? He could emply somebody to run it on a very healthy £30k and still take a nice profit himself.

This post answers it - low initial rent and a refurb on the horizion is fairly standard issue for all new tenants from the brewery.
Bad pubs hemirage money. Some pubs have lease that can increase the rent without notice or reason. Or they can ask you to contribute 50% to all exterior repairs and maintenance.
As a ruff guide the weekend trade will pay all the overheads the rest of the week will be whats left for you.
A business for £2k-£5k that will easily make a grand a week profit....all looks a bit to easy

 

[Wasworkinallweek]

if the figures are correct (i doubt it )
i will happily be a partner ........

also i would have thought at 1000 clear the brewery would happily run it therselves

 

[businessfunding]

You are probably getting a feel for general opinion..

If the brewery are going to inves in the pub they will want to see a return on their investment fairly soon - ie your rent will shoot up!

 

[businessfunding]

You are probably getting a feel for general opinion..

If the brewery are going to invest in the pub they will want to see a return on their investment fairly soon - ie your rent will shoot up!

 

[01smartc]

You all seem to have the same opinion as me.. seems to good to be true.

I will request the last few Vat returns, they may show a different story.

Rent is currently £700 per week, but ive been told it will go down initially. Its tied on all drinks including bottles, but I can buy out of the tie on bottles for £1800 if I want.

By the look of the figures quite a bit of income comes from pool tables and gaming machines. They currently dont offer any food but have a kitchen and separate dining area for about 20 people.

Pub is on a main high street of a large village. The same village has 4 other pubs and a working men's club though so quite a lot of competition. The other problem is it only has parking for bout 5 or 6 cars outside. However there is a public carpark opposite

Chris

 

[patientlady]

Oh dear far worse than I first thought! Ask for proof of the barrellage figure, and ask for the vat returns. I promise you this landlord is not giving up a good pub!
I realise you have given us scant info but I am worried for you! Do you have any pub experience at all and I do not mean pouring a pint!
You need pub co experience otherwise they will tie you in , and bleed you dry and thats just for starters...

 

[Rhodes100]

If this is a lease who owns the freehold? Is this a Punch Tavern Pub or a tied pub to a brewery?

What usually happens when a Brewery refurbs the pub is that they want their money back and they will then increase the rent in the following years... substantially.

They are landlords renting a space to sell their beer, so that they can justify brewing

I would guess that the suggestion of a rent increase is what is happening with the current owner. The pub co has told him that they want a higher rent, which will mean that it will be unprofitable for him to continue with the management in situ. He has however made a killing in the short term keeping the pub open for the Brewery, so is willing to give the lease away.

If the Brewery dont make money via the rent it will be via your margins on buying from them, so check the gross profit against industry norms.

 

[timothy88]

steer clear my friend

 

[01smartc]

Thanks for all the help.. i'm currently waiting for some more paper work / vat returns to be given to me to study.

However i'm leaning towards thinking it can't be that good otherwise he wouldn't be giving it up so easy!

Chris

 

[rightpeoplerightplace]

There are so many things that you might miss when signing up for a licensed outlet should it be with a Pubco or Free of Tie private lease. You also need to watch out that you are being told its a lease when really you are buying into a Tenancy at will agreement. Should you have accommodation above your outlet you might find that you are charged a domestic rent, also you will be paying rates on both.
As you have also said there is a real increase in drink price when not free of tie, there are however ways of upping your chances by looking at half tie etc. This is when you are only tied to certain drinks like Beer and mixers but not spirits or wine, this is great if you are a Food led outlet.
There is a lot to look at when getting a Licensed outlet and that's before you have found the right one for you.

Good luck all

John

finding you the right licensed outlet
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