Purchasing A Pub Lease

[Kentishlad85]

Hello Everyone - First time poster (Please go easy on me!)

Myself and a business partner are looking at purchasing a pub/restaurant lease. I have 10 years trade experience (But never owned one myself) and he has donkeys years...We are looking a purchasing the lease on a pub that I was managing when covid hit. Its a great pub, served well by the local village community and also a destination place for food. Turnover from 2021 to 2022 increased 24% YOY. I know the reputation, clientele, food etc etc. Profit after add backs has been consistently over 100k pa. Everything sounds good so far...

So the lease is 165k...here comes my questions for the experienced of you...Probably just yes or no answers but its good to know right?!
Should we create a LTD company and purchase the lease through that? To give us a little more protection in case the worst happens?
What happens to the current pubs bank accounts? Do we start our own and start with a 'zero balance'?
How much do you suggest for cash flow at the start?
If we get an investor to pay for the lease, has anyone agreed a similar situation and what sort of return was offered to investor?
If we made ourselves directors of the LTD company, can we pay ourselves a salary for working at the pub and take dividends from the company several times a year?

So many questions...but I really appreciate in advance any words of wisdom. Also if you know of any pitfalls to avoid, please shout them as loud as possible for me!
Thanks all, have a great day!

 

[Mark T Jones]

You really need to break this down into several posts on the relevant parts of yhe forum

However, here goes

Absolutely 'yes' to a limited company and to new bank account

How much cash do you need? - about 50% more than your projections suggest. Please don't even contemplate doing this without detailed, fully researched projections.

Whilst you clearly have more operational knowledge than many who want to buy pubs, it is really important that you understand the business of running a pub - and it isn't serving beer and food.

Finally, be sure to properly understand the lease (take legal advice)

 

[WaveJumper]

Is that a 100k profit after you have taken your salary, double check all on going costs especially energy and as above defiantly get legal advice on the lease

 

[Mark T Jones]

Hello Everyone - First time poster (Please go easy on me!)

We will try, but life & business won't!

Myself and a business partner are looking at purchasing a pub/restaurant lease. I have 10 years trade experience (But never owned one myself) and he has donkeys years...We are looking a purchasing the lease on a pub that I was managing when covid hit. Its a great pub, served well by the local village community and also a destination place for food. Turnover from 2021 to 2022 increased 24% YOY. I know the reputation, clientele, food etc etc. Profit after add backs has been consistently over 100k pa. Everything sounds good so far...

1. Why are they selling?
2. Why are they really selling?
3. No, seriously - why are they actually selling?

If we get an investor to pay for the lease, has anyone agreed a similar situation and what sort of return was offered to investor?

You have to negotiate that between you - And you need to get a very comprehensive shareholders' agreement.

This is a business relationship, not just a cash bung!

If we made ourselves directors of the LTD company, can we pay ourselves a salary for working at the pub and take dividends from the company several times a year?

Simplistically, yes, but you need an accountant to advise you on such things.

So many questions...but I really appreciate in advance any words of wisdom. Also if you know of any pitfalls to avoid, please shout them as loud as possible for me!

Pitfalls - how long have you got?

I have some insight to the pub trade from in front of the counter, behind the scenes and as a financier. (You didn't ask, but no I don't do finance for 'Mr & Mrs' tenanted pubs). It's typically challenging (and not what the owners think it is) - At this moment it's especially tough with core costs being hit from all angles, staffing challenges and (with huge geographical variation) a falling off of trade as the cost of living crisis starts to bite

Thanks all, have a great day!

Hopefully I haven't ruined yours, but if I have, better to do it now that after you've committed!

 

[Paul Kelly ICHYB]

urnover from 2021 to 2022 increased 24% YOY

I would be worried about this. 2021 we came out of lock down between March and July, which means that the growth was very slow in getting back to normal! What is the 2019/2022 comparison?

I have 10 years trade experience (But never owned one myself) and he has donkeys years

Phew, at last someone who has some experience in a business they want to start!

Profit after add backs has been consistently over 100k pa

As asked, is this gross, nett, before all wages/payments or after?

So the lease is 165k.

Up front? Per year?

What happens to the current pubs bank accounts? Do we start our own and start with a 'zero balance'?

If you are taking over a business, probably the first. Starting a new business, the latter.

If we get an investor to pay for the lease, has anyone agreed a similar situation and what sort of return was offered to investor?

Piece of string

If we made ourselves directors of the LTD company, can we pay ourselves a salary for working at the pub and take dividends from the company several times a year?

yes

 

[Newchodge]

Myself and a business partner are looking at purchasing a pub/restaurant lease

Just the lease? Fixtures and fittings? Stock? Also the staff are likely to be subject to TUPE, don't forget.

 

[BobzYourUncle]

How long is your lease? How much is your rent? Rent review? Dilapidation? Full repairing? £165k for a lease. If I had that amount of money, honestly don't think I would buy a lease. It will be devaluing every year that goes by. It will be hard to sell on especially in the next few years. We are heading into a turbulent few years of recession and uncertainty. Sorry to be a killjoy.

 

[thetiger2015]

So many questions for you to answer...

but also...who are you getting the lease from? Is it a property owner or a chain that lease pubs out but expect the occupants to use their suppliers?

Be very, very, very, very cautious..very! Also, be cautious with your business partner. I setup a business with a mate once. Disaster. Cost me lots of money to get out of the situation.

 

[MBE2017]

Plenty of advice, but on top of everything get utility quotes and get ready for a huge shock, many pubs and restaurants are looking at shortened hours due to crazy gas and electric rates, with a bad recession on the horizon, think 8% BoE or more as potentially possibly hitting your clients, and discretionary purchases soon fall by the wayside.

Mark covered most things, re visit your plan, re check your costs, your roles, responsibilities are methods of dispute resolution, because you will need them. Best of luck, you are starting in one of the hardest sectors of the economy.

 

[BubbaWY]

For me, seperated and no children, I would rather cut back in other areas than the multiple times I visit my local pub each week. For social reasons, not because I am an alcoholic But, I am probably in a fortunate position. As others have said, its a terrible time to be looking to take on a pub with leisure time/spend to be one of the first thing many families cut as times get tougher. On the flip side, you could potentially use that to your benefit i.e. in negotiating better terms.

 

[MOIC]

Your decision should be reached by all of the above comments.

Too many hurdles and unforeseen problems associated with this business given the relatively low potential for 2 partners and possible investor.

I wouldn’t touch it.

100k profit per annum, is a job, not a business.

 

[BobzYourUncle]

We was very lucky to have found a tenant for one of our businesses this year. The previous tenant had been there over 10 years. The cost of stock, energy and staff going up year on year but their turnover not excelerating the same pace meant it became unviable for them and that's despite us reducing his rent by 20% for the last 3 years of his tenancy agreement. Even if we gave him it rent free they would still be hemorrhaging money. Our saving grace is that the property is in a prime location, plenty of onsight parking and is suitable for multiple different retail outlets and conversions. It didn't take that long to find someone. These new tenants didn't ask for a rent decrease but we was happy to take a rent cut because times are going to be very tough for small business owners. These guys who are taking it on are trying out a new fast food concept and we do want them to succeed. We can't do much for them in terms of help and advice as its a different concept to ours.. But felt giving them a rent discount as a goodwill gesture. We fortunate in that the freehold is fully paid up. So we have leeway. When BOE raises interest anywhere near 7% means people's mortgages are going to hit nearer 9%. Many will be overstretched and in negative equity territory. Eating out is going to be a luxury maybe once a month than a weekly thing. Unless your main customer base are predominantly over 50 mortagage free have lots of disposable income. I've been in food trade over 28 years. This feels very much like the dot.com crash and credit crunch era. But slightly worst in that slight little panic in the markets or economy causes massive reactions and consequences.

 

[The Resolver]

Should we create a LTD company and purchase the lease through that? To give us a little more protection in case the worst happens?

Yes. But the protection may be limited in that the Lease may be subject to a personal guarantee,

In any event, and in addition, you simply MUST have a Shareholders Agreement drawn up . I am currenlty working on a resolution of a dispute between shareholders running a pub which has been made so much harder than need be through the absence of a SHA. See my page on SHAs at www.BoardroomResolve.com

What happens to the current pubs bank accounts? Do we start our own and start with a 'zero balance'?

Depends on the deal , Are you buying the company currently running the pub business or just buying the business with its assets (and Lease)? I imagine the latter . Usually a business is sold on a zero cash basis, ie with no cash left in the kitty.

You need to submit a series of questions about the business to ensure if there are any skeletons in the cupboard you have a claim for misrepresentation.

Oh and don't forget to ask the main question ' "why are you selling?"

Is this a free house or is it tied? If so, further investigations required. But generally do the furnishings belong fully to the seller?

How much do you suggest for cash flow at the start?

Not my territory but this will depend on your business plan and the accounting records/trading history for the pub. You need to ask a financial expert to invetsigate what data you have been given and advise on the price.

If we get an investor to pay for the lease, has anyone agreed a similar situation and what sort of return was offered to investor?

If you take in investment , requiring shares to be given to the investor then bear in mind you wil be sharing profit with him for an unlimited time unless you have a detailed investment agreement drawn up.

If we made ourselves directors of the LTD company, can we pay ourselves a salary for working at the pub and take dividends from the company several times a year?

Yes. Dividends come to you as shareholders not Directors. Whether yu can pay yourselves dividends will depend on whether you have 'distributable profits' - ie cash not required to pay creditors or to run the business day to day .So no guarantee. If you pay within the year and your accountant advises at the end of the year that it would be unlawful to pay dividends (because trading went south during the year) you may have to repay what received on account.

AsI said above bear in mind that dividends need to be shared with the investory proportionate to his shares. You can issue a separate class of shares to the investor to allow for separate dividends but he will probably not go with that!

So many questions...but I really appreciate in advance any words of wisdom. Also if you know of any pitfalls to avoid, please shout them as loud as possible for me!
Thanks all, have a great day!

Pitfalls? Watch out and ignore totally any claim that (wink) "of course we make more than in the books as take so much as cash". In fact don't ignore as this could lead to a headache with HMRC in the future. If he doe say that maybe HMRC are on the cas and thsi why its up for sale? You need to ensuer the Sale and Purchase Agreement contans an adequate indemnity clause for any post completion headaches.

All pubs have pitfalls simply from being a business that relies totally on the general public casually dropping in. Sone pubs are packed others are empty. Why? Some nights are packed, others enpty. Why? At least you have the experience of thsi one but I suggest you go and visit any pub winning an award to identify what they get right. A couple of days ago I had a wonderful evening at the winner of Time Outs 'Best Pub in London'. Packed pub not just drinkingand eating but singing and dancing to live music. Great atmosphere.

I:m sorry I have not kept my answers to the 'yes' or 'no' you anticipated. .I hope I have not put you off You are welcome to book in for a chat ( link at www.BoardroomResolve.com)

 

[Washington]

Hello Everyone - First time poster (Please go easy on me!)

Myself and a business partner are looking at purchasing a pub/restaurant lease. I have 10 years trade experience (But never owned one myself) and he has donkeys years...We are looking a purchasing the lease on a pub that I was managing when covid hit. Its a great pub, served well by the local village community and also a destination place for food. Turnover from 2021 to 2022 increased 24% YOY. I know the reputation, clientele, food etc etc. Profit after add backs has been consistently over 100k pa. Everything sounds good so far...

So the lease is 165k...here comes my questions for the experienced of you...Probably just yes or no answers but its good to know right?!
Should we create a LTD company and purchase the lease through that? To give us a little more protection in case the worst happens?
What happens to the current pubs bank accounts? Do we start our own and start with a 'zero balance'?
How much do you suggest for cash flow at the start?
If we get an investor to pay for the lease, has anyone agreed a similar situation and what sort of return was offered to investor?
If we made ourselves directors of the LTD company, can we pay ourselves a salary for working at the pub and take dividends from the company several times a year?

So many questions...but I really appreciate in advance any words of wisdom. Also if you know of any pitfalls to avoid, please shout them as loud as possible for me!
Thanks all, have a great day!

What happened ?
Did you go ahead ??