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The phrase ‘couldn’t organise a piss up in a brewery’ is a common saying, however in reality a pub business plan is very complicated and difficult to run successfully.
Many people think that running a pub is a great business. You get to socialise with people, and they tend to pay for all their purchases straight away either in cash or by card. However, the truth is that running a pub is one of the hardest jobs there is in the leisure sector. The hours are long, and the costs of running the business can be large. One accountant I know, who specialises in providing services to pubs, estimates that out of every £10 spent on a round of drinks only 80p represents profit to the owner of the business. This is because included in the £10 is VAT then all the costs of the business which must be paid including the costs of the drinks sold, rent, rates, utilities, staff wages, insurance, hire of equipment etc. This means that a lot of beer has to be sold to create the profit from which the owners can take their own wages.
Pub Business in Trouble
I was reminded of this when I recently went to see a landlord of a town centre pub. He had taken it over less than a year ago with his wife. He had been a taxi driver and had never run a pub before but believed that with hard work he could make the business thrive. Whilst the pub was in a decent location there was a lot of competition very close by. He had to invest all his savings to buy the stock and to provide a security bond to the brewery that owned the pub. He did not have enough money to buy the fixtures and fittings therefore he rented them off the same brewery which payment was added to the rent that they were charging for the premises.
Registering for VAT
He began making mistakes in the running of the business almost straight away. He did not register for VAT, he failed to account for rates and utilities and he generally neglected the finances of the business. He had failed to appreciate his weaknesses and did not go to an accountant to help him. His wife was doing the cooking but she fell pregnant and could not work as hard anymore. This meant that the food offering became very limited which meant that customers quickly drifted away to other pubs.
Paying Business debts with Personal Credit Cards
Pressure from creditors began to build and having exhausted his savings in going into the pub, he started to borrow on his credit cards to pay them. His personal creditors began to build and he was finding it difficult to meet his ongoing obligations and was not able to pay himself much of a wage. Whilst he had set up a limited company to carry out the trading, the lease for the pub was in his own name making him personally liable for the rent for the 10 years that the lease was for.
When I met him the stress of dealing the pub was obvious. He needed help to put in place a plan as to how he was going to deal with his affairs. His stress was exacerbated by the fact that he was worried that he would be held criminally responsible for the failure of the business and would have to go to Court and face prosecution. I was able to calm his fears and put his situation into some sort of perspective.
Liquidation, and a Fresh Start
He needed to earn a regular income so that he could provide for his growing family. The pub was not going to work for him and so he needed to get out of it. As he lived on the premises he needed to find somewhere to live. Then he needed to find another job which paid him regularly. The limited company would need to go into liquidation as it could not pay its liabilities. He would be left with personal debts to pay including credit cards and the obligations under the lease. Dependent on the income he was able to earn, he would need to consider some sort of payment plan with his personal creditors or consider making himself bankrupt.
Now this may not seem to be positive outcome. However, I would disagree with that point of view. Insolvency legislation in the UK provides a legal framework within which unaffordable debt can be dealt with. This gentleman had got himself into a mess which needed to be resolved. By pointing out his options simply and clearly, I was able to dispel his misconceptions and give him a way he could put the failure of the business behind him and move forward with his life.