From finance to freeholds: how to run a pub or bar

Want to get set up as a publican? It’s a challenging field, so do your homework first. Begin with this guide to getting started in the trade.

4 June 2019

From the outside, running your own bar or pub might seem like the ideal job – no early starts and a working atmosphere surrounded by people relaxing and having fun. But don’t let the customers’ smiles fool you. The pub trade is complicated, competitive and fraught with pitfalls. Don’t fret, however, we've consulted the experts for an insider’s view on creating a successful watering hole.

The basics of running a pub

So, you’ve decided you want to run a pub. Great decision! Despite being a challenging career path it can also be extremely rewarding socially and financially. However, there are pitfalls everywhere and you must make big decisions from the off.

First, you must decide which form of ownership you want. There are broadly four options:

Freehold

Buying the pub lock stock and barrel means you call the shots and can enjoy a sizeable asset in the bricks and mortar of the property. Due to this freedom, it’s the most desirable form of ownership, but also by far the most expensive.

Lease

Leases are hard to come by, but can be lucrative and lower risk. In this format, someone else owns the property and business, and you run it for an agreed fee. You can also sell a lease, meaning there’s a potential profit to be had if you build the business up.

Tenancy

Tenancies are like leases but they’re not transferable. You pay rent and run the pub. Then, at the end of the lease period, you hand it back to the owner.

Tied

Breweries and pub companies own thousands of pubs across the UK. They offer low barriers to entry in exchange for dictating the drinks sold in the establishment – almost always prioritising the beer they brew and sell. Tied pubs are cheaper to get into but the model has come under criticism.

Dave Montford, owner of Peak District pub the Boat Inn, who rents his property from a private individual under a tenancy agreement, says pub companies are profiteering from unwary entrants to the market.

“Tied pubs are supposed to enjoy benefits, but this is rare in reality,” he says. “I ran a tied pub for five years and it bankrupted me, but now I rent my pub and am free to buy my beer on the open market. In six years we have built a thriving business with a high turnover and profits. Tied pubs pay roughly the same rent as others, but they are charged much more for beer – up to double – and that means it’s incredibly hard to make a profit.”

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Industry challenges

The pub trade attracts a lot of people in search of so-called ‘lifestyle businesses’. These come for the cost-effective tied pub model, but get into difficulty later on. In many cases, it’s because they don’t prepare properly.

Montford points to a range of other hurdles, from finding reliable casual staff to developing a distinctive brand and atmosphere that attracts respectful customers, particularly in tourist areas.

Dan Mawson, a former publican who ran two tied pubs in the Welsh town of Bangor, says the day-to-day running of the business consumed his time, meaning it was a struggle to turn attention to strategic business-building and customer-development.

“Cash-flow is the number one consideration for most pubs,” he says. “Because so much is coming in and going out every day. You have rent, stock, wages, security, business rates and taxes – including corporation tax, national insurance and VAT.”

Wider issues such as mandatory alcohol pricing, which inflates the price of a pint, and a business rates system seen by many in the trade as stacked against pubs, also puts pressure on those in the industry.

According to lobby group CAMRA, around 14 pubs are closing their doors each week in 2019, a partial improvement from 18 pubs a week calling time in 2018. The group has launched a ‘Save Our Pubs’ campaign to help reverse this trend.

Speaking about business rates in April, CAMRA chief executive Tom Stainer, said: “The rates hit tied tenants especially hard, as they are usually unable to make cost savings elsewhere and have squeezed profit margins due to the high price of tied beer.”

The opportunities

According to Montford, the sector still has ample opportunities to grow businesses, but only if you know what you’re doing. In fact, it’s a major problem that so many people enter the trade with little or no experience.

“My advice is to treat it like any other start-up. You can’t just show up and start pulling pints, you need a good business plan,” he says. “People [often] don’t do market research, think about the brand or even look at budgeting. Then they are shocked when a tax bill comes out of the blue.”

He also recommends evaluating your own skillset and sticking to what you are good at, recruiting others to fill the gaps. He admits he no longer has the patience for front-of-house work, but his wife is brilliant at it, so he spends more time cooking pub grub than pulling pints.

Food is an important aspect to running a pub. Although the profit margin is lower than for drink, it attracts more customers who will almost always order drinks with their food. Understanding equations like this are what it takes to succeed.

The financials of running a pub

For any start-up, it’s important to think about the amount of capital required to get the business going. Tied pubs aside, pub tenancy is an expensive game. Buying a pub could set you back a million pounds or more, while just setting up operations in a leased venture could cost tens of thousands.

Pub finance is not easy to come by, mainly because of the industry’s reputation for business failure (fair or not). So would-be publicans either need to save a nest egg, get a business mortgage or find a wealthy backer.

Those who are already in the industry can contact a specialist provider for working capital to cover shortfalls in cash or larger investments. Online lenders – such as iwoca – are set up to help independent traders like publicans manage their cash-flow with a small business loan.

If you've got premises or equipment but need to raise some funds, it may also be worth looking into asset finance. This is a type of secured loan when the value of an asset is used as security against borrowing.

Over to you

Finding a pub to let or buy isn’t hard, avoiding pitfalls is the tricky bit. But entrepreneurs with a grown-up approach to business, who do their research, develop a plan and watch their finances, can create a brilliant business.

So, give it some time and a good deal of thought. And, whatever you do, never act on impulse.

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Words by Dan Matthews

Dan Matthews is a freelance journalist who has written for publications such as Forbes, The Guardian and The Telegraph. He is also the managing editor of Minutehack – a website for entrepreneurs and executives.

Article updated on: 4 June 2019

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