Pub lease advice

[Matradory]

Hi all, I’m just looking for any advice on a business opportunity I’m currently exploring.
The opportunity is as follows:
Free of tie pub with a couple of letting rooms, rural location, very seasonal (June, July, August busiest months) with small community, no close competition, 60 cover dining
turnover £250k, GP 60%
Leasehold
Ingoing £60k, annual rent £40k
Would be running as a family team of 3 plus staff
we have been working in hospitality for over 20 years
would be proceeding as Ltd company
Any advice appreciated, especially regarding the ingoing and rent levels
many thanks

 

[fisicx]

After paying tax, utilities, staff wages and everything else doesn’t look like there will be anything left.

 

[Mark T Jones]

Hi all, I’m just looking for any advice on a business opportunity I’m currently exploring.
The opportunity is as follows:
Free of tie pub with a couple of letting rooms, rural location, very seasonal (June, July, August busiest months) with small community, no close competition, 60 cover dining
turnover £250k, GP 60%
Leasehold
Ingoing £60k, annual rent £40k
Would be running as a family team of 3 plus staff
we have been working in hospitality for over 20 years
would be proceeding as Ltd company
Any advice appreciated, especially regarding the ingoing and rent levels
many thanks

There are numerous threads on this topic if you do a forum search.

I work a lot with hospitality / f & b - whilst I don't join in the 'pub trade is dying' chant - it is currently extremely tough, with core costs being hit from all angles.

Before doing anything and look very closely at their figures - 3 year trends and related your own, in very close detail.

And look closely at the lease terms

 

[Newchodge]

What do you get fpr £60k? Who receives the money?

 

[Matradory]

After paying tax, utilities, staff wages and everything else doesn’t look like there will be anything left.

Hi fisicx, thanks for your reply. I‘m assuming a net profit of around £30k after those costs have been taken into account. We will be putting in a lot of hours with an equivalent hourly rate well below that of the National minimum wage, of that I’m sure!

 

[Matradory]

There are numerous threads on this topic if you do a forum search.

I work a lot with hospitality / f & b - whilst I don't join in the 'pub trade is dying' chant - it is currently extremely tough, with core costs being hit from all angles.

Before doing anything and look very closely at their figures - 3 year trends and related your own, in very close detail.

And look closely at the lease terms

Hi Mark, thank you for replying. I’ve had a good look on this forum and the the message seems to be ‘if you’re thinking about leasing a pub…don’t!’
I can absolutely understand the reasons for this, it is incredibly tough for hospitality at the moment, especially small businesses.

The pub I’m looking at isn’t owned by a pubco, so that’s something positive.
I‘m also hoping that the business will be able to get through the tough times given the typical clientele in the area (retired, no mortgage, fairly wealthy).

The figures provided by the current owners aren’t representative of normality, mainly because of Covid and its aftermath. Therefore I’m having to base my assumptions on the years preceding Covid.
I will definitely be getting a solicitor to check the lease terms.

 

[Matradory]

What do you get fpr £60k? Who receives the money?

Hi Newchodge, thank you for replying. I need to look into what I actually get for the £60k, the owners of the property and business (the same people) will get the money.

 

[Mark T Jones]

Hi Mark, thank you for replying. I’ve had a good look on this forum and the the message seems to be ‘if you’re thinking about leasing a pub…don’t!’
I can absolutely understand the reasons for this, it is incredibly tough for hospitality at the moment, especially small businesses.

The pub I’m looking at isn’t owned by a pubco, so that’s something positive.
I‘m also hoping that the business will be able to get through the tough times given the typical clientele in the area (retired, no mortgage, fairly wealthy).

The figures provided by the current owners aren’t representative of normality, mainly because of Covid and its aftermath. Therefore I’m having to base my assumptions on the years preceding Covid.
I will definitely be getting a solicitor to check the lease terms.

I'm going to flatter myself that I know more about the trade from several angles than most on here.

My views don't reflect the most common ones. In particular, there's nothing inheritantrly wrong with Pubcos. They have the challenge of dealing with dreamers who see 3 pubs, fall in love with one (or 2) and convince themselves they have to have it now

Don't be that person. If the word 'dream' has even fleetingly entered your head, give it a good wobble.

Second- the main reason that pubs routinely fail is that the tenants/owners don't have a clue. They go in with a million ideas about menus/range of beers/ kids' play areas etc (compounded by the million others they will get on here, from regulars etc) - but nothing close to a researched thought- through strategy.

Its a business- and like any business its about knowing who your customer is, and what they will pay for repeatedly.

And finally, the current crisis isn't demand led - the trade is proving to be very resilient- it's costs and staff

 

[Matradory]

I'm going to flatter myself that I know more about the trade from several angles than most on here.

My views don't reflect the most common ones. In particular, there's nothing inheritantrly wrong with Pubcos. They have the challenge of dealing with dreamers who see 3 pubs, fall in love with one (or 2) and convince themselves they have to have it now

Don't be that person. If the word 'dream' has even fleetingly entered your head, give it a good wobble.

Second- the main reason that pubs routinely fail is that the tenants/owners don't have a clue. They go in with a million ideas about menus/range of beers/ kids' play areas etc (compounded by the million others they will get on here, from regulars etc) - but nothing close to a researched thought- through strategy.

Its a business- and like any business its about knowing who your customer is, and what they will pay for repeatedly.

And finally, the current crisis isn't demand led - the trade is proving to be very resilient- it's costs and staff

That’s good advice, thank you.
Interesting that you say demand is proving resilient, let’s hope that continues.

The reason the current owners are looking at leasing to us is that they live a long way from the property and have been relying on staff (which they have been unable to get). The business has been underperforming as a result.

We will live in the pub and run it ourselves. The costs are another matter!
At least inflation seems to be moderating.

 

[pentel]

Have you looked at buying the pub? It will probably be a lot cheaper in the long run.

Paying rent to work below minimum wage doesn't seem like the best business plan

 

[Matradory]

Have you looked at buying the pub? It will probably be a lot cheaper in the long run.

Paying rent to work below minimum wage doesn't seem like the best business plan

Hi Pentel, we have tried to get a mortgage for the freehold but lenders don’t want to lend against pubs at the moment unless the LTV is below 50%.

We will ask for an option to buy on the lease contract.

Paying rent to work below minimum wage is a worse case scenario that we’re prepared for but we hope we’ll do better than that.

 

[Mark T Jones]

Hi Pentel, we have tried to get a mortgage for the freehold but lenders don’t want to lend against pubs at the moment unless the LTV is below 50%.

We will ask for an option to buy on the lease contract.

Paying rent to work below minimum wage is a worse case scenario that we’re prepared for but we hope we’ll do better than that.

Licenced freeholds are an anomaly and can be a millstone as much as an asset

The big win is to get de-licenced and get planning. The downside is business plummets and you value falls by 50£, since turnover is critical