Five points to consider before selling your pub

Like most successful business undertakings, selling a pub - or more to point; selling a pub for a favourable price - is a process demanding careful planning and preparation. Regardless of style, location and form of ownership (leasehold, freehold going concern of freehold investment), the focus of vendor planning and preparation should be on maximising the financial return to the purchaser and insuring your ability to clearly demonstrate that return. In order to achieve this, some fundamental areas of the business and/or property should be carefully considered and appropriately acted upon well ahead (at least 12 to 18 months) of putting your pub on the market. In this article, we discuss five of those areas.

Maximise business income and profitability

Any and all measures should be taken to ensure business income and profitability is maximised. In terms of ‘top line’ income, this could include assessing the pub’s operating hours, product offering and operating procedures. In terms of ‘bottom line’ profit, major expense items such as cost of goods and employment costs should be addressed and brought into line with current industry benchmark (or better).

Ensure the accuracy of financial statements and reports

For varying reasons, financial statements and reports within the pub industry can sometimes fall short of actual financial performance. Financial statements should accurately reflect ‘top line’ income and ‘bottom line’ profit. All cash income should be declared and all employment costs should be ‘on the books’. While an un-taxed dollar may be enticing to some, the real cost of that dollar should be understood. As it is very unlikely that all the costs associated with earning the un-taxed dollar are also undeclared,  the effect to your bottom line is greater than just the profit margin you would have made on that dollar – it is in fact, one whole dollar. In a hypothetical scenario where your estimated business value is based on a 33.3 percent yield (three times EBITDA), the absence of that dollar comes at a cost of three dollars when the business is eventually sold.

Maximise tenure

An often overlooked opportunity to ‘maximise the financial return to the purchaser’ is in maximising the tenure or length of lease associated with a (leasehold) pub. Put simply, the more trading time a purchaser has available to them, the higher the financial return they stand to receive.

Identify and nurture potential growth areas

Most business purchasers believe that they can operate and grow the business better than the last operator. In the book ‘The Art of War’, Sun Tzu says “build your opponent a golden bridge to retreat across”. In a similar fashion, a vendor can potentially use a purchaser’s belief in their own ability to your advantage – ensure potential growth areas exist and highlight those areas in your marketing campaign.

Know your value and selling strategy

The most effective sale campaigns are usually those that have a clearly defined set of goals and a confident method of delivery to the market. In other words, know that the price, terms and conditions you are willing to accept are realistically achievable and have no hesitation in publicly demanding them from the market. When combined with the ability to demonstrate the strength of your business, the right asking price and selling method can deliver a higher sale price and a quicker sale. It is often the pub that ‘tests the water’ or approaches the market in a half-hearted manner that stagnates and becomes stale – the best way to dilute selling price. While there are many more elements that need consideration before making the decision to sell a pub, it is the five discussed above that most frequently make the difference between a favourable sale and a not so favourable sale.

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Five points to consider before selling your pub

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