Choosing your pub
The most important decision to make before taking the plunge is whether to run a lease or a freehouse.
Of the 58,000 pubs in the UK, only 30% are independently owned. 54% are owned by a pub company and 16% are owned by a brewery.
This makes running a leasehold the most popular option, as it is a much cheaper route into the pub business. You effectively buy the business, but not the property, and can sell it on that basis. You rent the pub from the pub company or brewery, with rent negotiated between you and your landlord, and then trade as a sole trader. You keep all of the profits of the pub, except that from games machines, which is usually shared between you and the pub company/brewery.
A leasehold can either be tied or free of tied. A tied leasehold means a considerable proportion of your drinks have to be bought from the brewery, so you can’t shop around to find the cheapest prices or particular brands you’d like to stock.
A tied lease is a popular first step into the pub market, says Richard Coltart, director of Richard Coltart Consulting and co-owner and director of pub company Who Cares Wins Ltd.
“A tied lease is a much cheaper option,” he says, “and is a good foot in the door. But it can lead to a struggle in the long term because you’re tied to the drinks you sell. This makes beer very expensive - you’re often making 20% less per pint in gross profit. That’s why many pubs are specialising food, or wine, or being children–friendly; the landlords are trying to keep sales away from beer.”
But, says Coltart, a tied lease can be a good stepping-stone to more independence:
“People take a tied lease, run it really well, make some good money, sell it for twice what they paid for the lease and then use that money to get a free of tie lease,” he explains.
A free of tie option provides the independence of a freehold without the cost, but is still more expensive than a tied lease.
If you decide instead you would rather have complete control and be a free-trader, you’ll need to put in much more investment up-front. You will have to buy the business and the property, making it the most expensive way to enter the trade.
However, you will be responsible for all decisions concerning the business, and you can make deals with whoever you like for products and services. You also have the long-term property appreciation. If you make a success of it, the rewards can be huge.
Before you start taking the first steps into acquiring a pub, it is crucial to draw up a business plan. A business plan is crucial to understanding what you want to achieve, how much money you have and what you can afford. And, of course, you’ll need to show a business plan to the brewery or pub company when applying for your pub.
As for the pub itself, in Coltart’s words, it’s a case of ‘location, location, location’.
“This is the most important thing to get right. Look what’s around you, the footfall, the competition, the transport, parking and general demographics.”
Also, make sure you get a proper survey of the building as this can save you a fortune later on, and ensure the building meets fire safety and environmental health regulations.