You can't have failed to notice that the British media have had something of a feeding frenzy around the supposed death of the British pub industry. Whilst it’s true that the habits of British pub-goers are evolving (as consumer trends tend to do) this does not mean that the great British pub is dead in the water…far from it. Did you know that 80% of the UK population would still describe themselves as pub-goers? or that 15 million people frequent a pub at least once a week?
The truth of the matter is that people's expectations of the ‘pub’ have changed and in order to flourish, pubs need to make sure that they keep up with what people demand. Whilst we cannot provide you with a specific formulae to ensure success (indeed originality is often the most valuable asset that an establishment can have) hopefully this quick guide to the basics will get you off to a good start.
Lease hold or free pub?
This is possibly the most important decision that you will need to make whilst entering the pub business. It will be informed by a number of factors including; your budget, your requirements of the business and whether or not you wish to run an already established premises or open an entirely new one.
So whats the difference between a lease hold and a free pub?
Well, a leasehold pub is is an establishment in which you effectively ‘buy’ the business (but not the building) for a period of time, during which you are free to fun the pub as you see fit and operate as a sole trader. The building still remains the property of your landlord (which is normally a pub company or brewery) but the business within is for all intents and purposes yours. This is the option which the majority of people wishing to run their own pub opt for because it is normally the cheaper of the two.
Once you have purchased the leasehold it is essentially your property, to do with as you see fit, including selling it in the future. This is another reason why the leasehold is such an attractive option, particularly to those who are beginning their life as a publican because if the business is correctly run and profitability increased, the leasehold may be sold for several times what it was originally purchased for. It is important to bear in mind though, that the opposite is also often the case.
There are 2 types of leasehold - ‘tied’ and ‘untied’. A tied leasehold means that there is an agreement with your brewery landlord that a certain proportion of the drinks that you supply will come from them. In an untied leasehold there is no such agreement. Therefore a tied leasehold is normally a less expensive option than an untied leasehold, but it means you are restricted in the range and variety of drinks that you can sell.
As you have probably guessed a free pub is one in which you own both the building and the business, which makes it a much more expensive option but gives you a higher degree of freedom and quite often a greater potential profit to keep for yourself. This option means that you will be the ultimate authority over your business and won't be tied by any lease agreements with breweries/other pub companies. This business structure accounts for only about ? of the pubs in the UK and is usually the reserve of seasoned publicans who have worked their way through the leasehold system, or those who have acquired considerable means elsewhere.
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How much does a free pub cost?
Of course it is impossible to say how much money that you will need to enact either of these options owing simply to the fact that there is so much variance in terms of size and profitability amongst licensed premises. That is why this decision must be so carefully considered, to ensure that you choose the correct option for you and don't put yourself at risk of financial hardship as a result of a hastily agreed contract.
The price which you will pay for a free pub is enormously dependent on a number of factors including; size, location, state of repair, fixtures and fittings, popularity, current profitability and so forth. Take all of these factors into consideration and you end up with a vast price discrepancy - you could, in theory purchase a pub for a few 10’s of thousands, whilst others will be priced at several million. The first thing that you need to do in this case is create a comprehensive overview of the funds that you will have available and what this will realistically get you in the current market.
Most people however do not buy pubs outright due to their hefty price tag, but rather opt for a loan from an established lender in order to supplement the funds that they have available. Loan providers will generally be willing to loan 70-80 % of the amount that you need to purchase your free house, but in most cases this will still leave you with a massive deficit to make up. An option is then to take a further loan from an interested party such as a pub company or a brewery, however these will most usually have strings attached with regards to the purchasing of their products which can take away some of the independence of running the business.
How much does a leasehold cost?
The price of securing a leasehold is similarly tricky to pin down, as it too relies upon a number of factors including; the cost of tenancy, the size of the premises, the decor, popularity and state of repair. Tenancy costs will usually be in the region of £20,000 - £60,000 which includes a deposit to secure payments for drinks in the case that you are unable to pay your suppliers. You will negotiate the price of the leasehold with the current owner taking into consideration fixtures/fittings, accounts and stock held on the premises. As a general rule you would need to invest around £120,000 to £150,000 pounds in order to secure a ‘middle of the road’ pub on a tied leasehold - although this figure will sometimes be much higher than this.
This is the part of the process that makes most people cringe - indeed there is lots and lots (and lots) of red tape! But we will do our best to simplify it a little bit.
The sale of alcohol for consumption on the premises requires that you hold a licence, which has been awarded to you by your local licensing authority.
In order to be awarded a licence your pub must meet a number of parameters concerning;
The prevention of crime and disorder
The protection of children
The safety of the public
The reduction of public nuisance
In order to be awarded a licence you personally must;
Be over the age of 18
Have no criminal convictions
Be a ‘fit and proper person’
Understand that with running a pub comes certain social and legal responsibilities
After this it is pretty much up to the discretion of the local authority whether they issue the licence or not - but certain attributes like having significant experience of the pub industry or holding a British Institute of Innkeeping national licensees certificate will probably stand in your favour. If purchasing an established business and you personally adhere to the expectations of publicans then there shouldn't be too many problems getting a license, however if you are establishing an entirely new business it can be somewhat more challenging to have the premises licensed.
Hopefully this quick explanation of some of the basics of starting your own pub have been useful and haven't put you off giving it a go! Next week we will delve much deeper into the specifics of running the pub including your business plan, marketing, finance and other business practicals.
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