Deep Singh

Friend of mine is looking into buying/leasing a pub. If a tied pub has a turnover of say £500k/year inclusive of vat, a 50/50 wet dry sale split and a rent of £50k a year what can he expect to make before tax?

Thanks

Jap2Scrap

My ex used to run a pub and it's fair to expect a 65% gross margin on foods and around 50% on drinks (allowing that some make more than others - coke is daylight robbery for example).

So 65% GM on £250k and 50% GM on £250k wraps up at around £180k.

The GM figures should allow for overheads and salaries but it's hard to say how many people are needed to do how much work though. The profits on food far, far outweigh those on drinks though so tell him to keep the existing kitchen staff sweet.

Jap2Scrap

Oh btw, those figures are very, very sketchy and your friend needs to do a hell of a lot of research before diving in. Through my ex I met a lot more broken and bitter alcoholic landlords than rich and happy ones.

Deep Singh

Thats what he/I are concerned about. The pub is £50k goodwill and then £75k per year rent and £600k turnover. This would still give a gross profit circa £200k. Even if he spent £80k on salaries (inc full time mananger) maintenance,utilities etc that still leaves £120k pretax. That sounds like too good a deal for the outlay. As you say you don't see that many rich landlords.

Chip

I would think salaries would be a fair bit more than 80k

Chip

falkster

I think if it seemed to be that lucrative than you wouldnt see so many boarded up boozers!!

Good pubs these days are few and far between so as said before you need to do your research.

sbk1972

Im the son of a publican, who had many pubs. Figures can be created to make the most crappy of pubs look good. Barrelage can be creative too. When my father sold one of his pubs, he brought everything for the others through it, to make it look good.

Tell your friend that the pub trade is changing. Soon laws will be in to stop smoking. The all night opening has changed things too.

Best test for this pub, is to go there on a mon/tues evening, in winter, or on a Sunday, to get a feel of the trade himself.

£75K rent is £1500 a week. Who looks after the building ? pays for the repairs ? I know many a publican in London who had to pay out for large repairs !! Health / Safety ? Fire regulations ? Licensing ? Will the lease make him tied ?

Has your friend ever worked in a pub ? Some many people look at running a pub as easy. They go to their local on a Friday night, see the romance of running a bar, but in reality, its crap.

This is why I went into IT, contracting.

If me, I would tell your friend not to bother matey.

SBK

R 14NS R

i ran pubs for ten years up until may this year, worked for the three biggest companies, whitbread, m and b, and greenking, why does your friend not just apply to a big company, manage one of their sites and make his mistakes ( which they inevitably will) with them, then get his own place a bit further down the line, that was my plan.

its very hard work, not just sitting at the end of a bar. it is sociable, but it is also 24/7. you need to be about all the time, as you can trust no one.

if they want any advice or help, or got any questions, pm me.

ian

DCI Gene Hunt

I'll keep an eye out for you next year on Ramseys Kitchen Nightmares

RMA26

Mate works for M & B

Reffro

As a rough guide a pub should make 20-25% profit assuming its run OK. So on £500k inc VAT, you're looking at £420k exc. so anywhere from £80-105K pa before paying the rent sounds about right. I would expect anything from £30-55K gross in your pocket.

||VaNDaL||

i have a pub in rochford essex, please be aware that all figures can be massaged to look good, also remember that to get a pub to be successful it takes anything between 16-20 hours a day, 7 days a week. it also has a very high divorce rate. your staff need constant watching because it is a cash business and finding honest staff takes a while.

a pub landlord is the pub in that you create the atmosphere and the ambience, people expect you to be there, and you need the ability to chat with all (and at their level).

on the plus sides is it is a buzz to do as it is a lifestyle not a job and if you get it right, yes you can do well.

pm me for any help you need , and also get yourself a good broker as they will more than pay for themselves in professional advice

GrantyBoy

dont forget Engalnd will be getting the smoking ban next year and may not take to it as well as Scotland did. Just a thought...

Deep Singh

Thanks for all the above. He is well aware of the hours and hard work but can't figure out the true profit. A few questions to the pub owners please.

1) The pub he was looking at was owned by Punch and previously had their manager in it. They gave very basic accounts but declared the turnover of £600k. Could/would they massage the figures and if so how?

2) Refro, are you basically saying that the profit gross of tax is 6-10%? What are the expenses that bring the margin down so low?

3) Vandal, the pub he was looking at is a sort of 'Harvester' type. Does it still need a landlord that is the 'life' of the pub?

Many thanks

Deep

Deep Singh

bttt

RRH

Deep, your labour estimate seems extremely low at £80k for a unit turning over £600k, and bear in mind margin varies wildly between tied and free houses.

Punch tend to be a touch creative with their figures; I'm ten years out of the game now, but looked over some figures for a friend who wanted to take a punch venue in Walsall.

It seemed far to good to be true, but rather attractive for someone with little experience of the pub / club game. Against my advice (not that I'm a business guru, I just spent a lot of years in the pub / club game) he decided to go for it.

After three months he was asking to borrow money, after six it was closed and he was trying to keep his house.

Now there was quite a lot of mis-management- he was rather naive and got a bit carried away once the money started coming in, but it never did anywhere the figures they'd claimed, neither income nor expenditure- they just weren't realistic.

Excercise extreme caution.

Simon

R 14NS R

in my pubs i was paying about £10k pa just for contract cleaners, i was being paid £30k plus, my assistant £18k, my head chef £18k, plus all the other staff, we were taking a little more, about £750k pa. if you want to pm i can give you more of a break down, but i do not have my p and l accounts here

as said before, figures can be adapted to show whatever you want, however you need to see a break down of the profit and loss accounts to really see where money was made and lost.

another big factor is why is punch selling it off? if a huge company like that could not make it work, why would anyone else be able to?

are there hidden costs, ie maintanance, plumbing, heating, accomodation, equipement, huge rental costs, huge council tax, so many factors, as i sais earlier, go and practice with a big company, then you will have more of an idea what to look for.

reputation is also massive, it can take more than a year to undo a few years of bad managemant, and get people back into your business, and then you have marketing costs!!!!

ian

Deep Singh

Thanks guys.

This is exactly what we were thinking also. Its too good to be true, the return on investment is too high. And as you have said if its such a money maker why doesn't Punch keep a manager in there?
The accounts Punch showed my friend were a joke. Basically a piece of A4 with a few numbers on it. Not a P and L breakdown at all, my friends accountant said they meant nothing!

It seems to be a consensus from you guys that the labour costs are higher than we've estimated. RRH, what would you estimate the labour costs for a turnover of £600k?

I'm going to email this link to my mate so he can have a look at what you guys think.

In essence I think you guys have confirmed our fears.

Thank you all very much for such fantastic advice!

///\oo/\\\

Deep,

Don't forget the impact of the *** ban.

Overall, sales are down around 6% in Scotland in the pub trade. And thats pre winter figures.

If this is a drinking man's pub - expect a much bigger impact. if its a family food type place, less so.