10-01-2008
What type of pub owner could you be?
by Rosie Beasley
If your dream is to run a pub, then the first thing you need to consider – even before you find a business for sale – is what type of pub business you want to be involved with. There are three options to consider: Freehold, Leasehold or Tenancy. The option you choose may affect the type of pub insurance you need.
Freehold
This means that you buy the building and the business outright. Not being linked to a brewer or pub company means that you can trade as you wish, buying in the brands of beverage that you feel would sell the best.
While some lenders would prefer you to have knowledge of the business, it is not always essential. It is in your interest, however, to seek some training rather than expecting to learn on the job. The British Institute of Innkeeping (BII) runs courses for future landlords and there are health and hygiene certificates that you should have and display in your premises.
To buy a freehold pub, you would normally need to put up at least 30% of the cost yourself, with the bank lending the rest. If you are buying an existing business and can provide accounts, lenders may be more inclined to lend you the money as there is a track record to support your application.
Your new pub will need a licence in your name. You need to apply for this and a protection order around 3 weeks before you take over the business. Consult your solicitor about the best way to do it. There is a course you must take that confirms your knowledge of licensing laws – the National Licensees Certificate.
In terms of insurance you will be entirely responsible for ensuring you are fully covered. You will need to look at public liability, employer's liability, stock and/or cash cover, as well as buildings and contents insurance. All this can be bought as part of the same policy, but be sure to check the small print for exclusions in order to get the right one for your pub business.
Leasehold
A leasehold means that while you own the business itself, along with any fixtures and fittings, you must pay rent on the premises.
The premises are usually owned by a brewer and therefore you are normally required to purchase your beer, cider and alcopops from that brewer, although the rest of the stock is up to you.
This can be an easier way to gain experience with running a pub, because you have the support of the brewer behind you. You will usually have to complete a compulsory training course provided by the brewer, to make sure you have the skills necessary to run the business and promote their brands effectively.
As with owning a freehold, in addition to the brewer’s course, it is wise to undertake the BII and the necessary health and hygiene certificates.
As far as borrowing money to buy the business goes, you could expect to get around 50% if other security is offered. Again, presenting previous accounts could work in your favour.
The licensing rules are the same no matter how you choose to buy your pub – you must apply at least 3 weeks in advance for a licence and undertake your National Licensees Certificate.
Whereas with a freehold you are paying monthly commercial mortgage payments; with a leasehold business you must pay rent. Rent can be re-negotiated at the end of the agreed term or at regular intervals (maybe at 3 or 5 years). Even though you are renting, you are responsible for the interior décor, repairs and maintenance.
Tenancy
Purchasing the tenancy is the cheapest and quickest route to running a pub, however it offers the least autonomy. Even though you do not own the business, you must buy the fixtures and fittings and pay rent on the premises.
Many first time landlords enter the industry this way, as no experience is usually necessary. The pub company is likely to run its own training courses, or at least provide access to one.
In return, you are normally limited to providing customers with the pub company’s own brand drinks and using their suppliers. They will also work closely with you to develop and grow the business.
Tenancies can be bought for as little as £15,000, so a commercial mortgage or business loan is not usually necessary.
If you're buying a pub, don't forget that you need specialist business insurance.
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