Leasing a pub- help needed.

TheGaz1982

Hi,

There is a large pub / nightclub to lease near where I live, the premesis has great potential and I would love to have a pop at it, but think that the risk may possibly be too high to chance (considering that I do not have great experience in this field- although my business partner does).

Could anyone give me advise on leasing a pub. The lease is around £35k per year paying quarterly (first payment in advance). The land loard is a one man band- and not a huge national chain so obviousley there is room for negotiation as it is standing empty.

What is the best way of financing this- assuming I need around £30k to get it up and running?

Can I write a 'option to buy' into the lease agreement?

Is all capital expenditure at my own risk?

Any advise would be very much appreciated!

Regards,

Gareth.

Running_Horse

A friend has just lost everything he had because he thought he would love to "have a pop" at running a pub. Despite slowly increasing turnover the pubco forced him out of his new home with a couple of days notice. If you are serious about it then get a job behind a bar or manage for someone else for a while to get to know the industry. It is a really bad time to be investing your own money in a pub, unless you are a chef who can create a new income stream to supplement wet sales.

TheGaz1982

Thank you for your reply.

I am currently working in a full time job as a quantity surveyor, which I would plan to keep on.
My potential business partner is a bar manager with 10+ years experience in the pub industry, I have got around 10 years experience of working on the bar and dj'ing too.
Surely your friend would have had a long-term lease tied up so he couldn't be kicked out of the pub?
Everyone says it is a risk- but I cannot help noticing the potential for increased revenue.
Would there be a turnover amount needing to be acheived to cover the lease of £35k?

Regards,

Gareth.

roger196

Use a limited company or limited liability partnership for your business. If the business goes TU, then you have no personal liability. Also do NOT give personal guarantees. Do not sign a 21 year lease as you will be liable for the rent for the next 21 years even if you assign the lease and the replacement lessee fails to pay. Rent payable is negotiable. A 12 month lease with an option for you to renew for x years at the same rent is one possibility. Can you make the rent payable dependent on you turnover.
A proper business plan with realistic expectations on the number of paying punters is essential. If the present owner cannot make a profit, why do you think that you can. Try and look at the accounts of other nightclubs to see where the pitfalls are. There are also problems over obtaining appropriate licenses and planning permission issues. You have a lot of homework to do. You will find some useful info under "business economics pubs" on www.hmrc,gov.uk, ,look for vol 16 & 17 on pubs and catering. There are no doubt trade journals which will give some help.
Competent professional advice ( accountant for figs and business structure and sols for lease) is necessary here.

Radiantsoul

roger196 wrote: »

Use a limited company or limited liability partnership for your business. If the business goes TU, then you have no personal liability. Also do NOT give personal guarantees.

Easier said than done though. If you need finance then a lender is likely to require some security and personal guarantees are the norm for banks.

leveller2911

Dying trade Pubs, the vast majority will go the way of the steel and mining industry....

I think any financial institution will be vary wary with this venture.IMO its a bit like buying a stake in a firm that makes fax machines, dead duck........Does the lease include business rates? they can be horrific with pubs, heating,lighting,insurance,emplyment costs....???

Go back 25yrs or so and you had lots of ex coppers etc buying pubs, making good money and retiring to Spain......Not any more


Like I said its just my opinion.....Good luck though

scot88

I tried this a few years back and lost everything. Even with a business partner with years of experience I would if I were you. Why is the pub empty at the mo, for how long has it been so ? I know from own experience that it is almost impossible to get previous regular customers back as they will have found a new local. I also know that after me there were various enthusiastic tenant/landlord and they all went bust within a few months. I wish you well whatever you decide.

ciano125

I value a lot of pubs and clubs and pretty much every one I do these days is going in one direction.

Do yourself a favour and keep your money in your pocket, or at least, don't put it into a pub!

roger196

Radiantsoul wrote: »

Easier said than done though. If you need finance then a lender is likely to require some security and personal guarantees are the norm for banks.

I never realised that the £200 billion quantitative easing from the Bank of England was covered by the personal guarantees of the directors of the recipient banks.

property.advert

I've owned, set up and built up bars in Europe and Asia and was involved in taking over a pub in Chippenham in the UK a few years back. I also consulted on the take over of a pub and hotel in Islington in London not so long ago.

Concentrating on the pub side of things and discounting any other income streams such as rooms or functions, then the first question you have to ask yourself is why this isn't working for someone else, with loads of experience ?

£35k a year sound like "oh, give me £700 a week" to me. You need to find out what other places are paying. Not easy. You also have to ask why this owner has bought it. A lot can be learned from studying the history of a business.

Your killer is going to be your suppliers. You could find that you are offered contracts for supply which force you to buy certain volumes and if you can't hit those targets, your costs increase or even worse, you have to pay and not receive !

Do not ever underestimate how much it costs to get a place up and running. What look like small expenses can turn into huge ones. Furniture for example is not your Ikea stuff, it has to be real industrial quality. Carpets cost mega bucks for quality. Even decorating costs thousands.

You need to know the whole market in your area and you need to identify your target market. No point say if you have to drive there but there is no car park for instance.

Even if it still interests you, you have to look at volumes. I'll use some simple maths. If each drink sold contributes £1 to the top line, and you have weekly expenses of £700 (rent), £100 (utilities), £100 (insurances and accounting), £500 (manager salary), £1200 (3 staff doing 40 hours each at a cost to you of £10 per hour), £100 (repairs and cleaning), £300 (other) then you have expenses of £3000 a week and need to sell 3000 drinks a week. If the average customer has 2 drinks then you need 1500 customer or 200 a day. Impossible.

Of course, you can install fruit machines etc. and be on a percentage of the take, a pool table can be very profitable but takes up space.

If you do food, then you need all kinds of hygiene certificates and qualified staff.

The numbers are not supposed to be highly accurate but you need way more cash to fund the place than the opening costs and you will run at a loss to begin with. When tenants who live in and therefore save rent and don't get proper salaries and work 100 hours a week, both of them, cannot make it work, why do you think you can ?

Banging out a bar in a former shop is much easier in many respects but the refit costs £100k+

I'll happily work though any actual details you come up with but this isn't a good idea if it is just to give your partner a job.

Running_Horse

TheGaz1982 wrote: »

Surely your friend would have had a long-term lease tied up so he couldn't be kicked out of the pub?

He sold the lease back when he ran out of money, and all the promises of help turned to nothing when it suited the pubco.

The point is he couldn't make a go of it despite working 14 hour days and increasing sales every month. Maybe your situation will be different, and I wish you the very best of luck.

The only way I would consider it is as a freeholder able to negotiate with suppliers with no ties. But then if I had that kind of money I wouldn't invest it in a pub.