How To Calculate The Costs Of Running A Pub
Date added: Mon, 07/08/2017 - 10:00
Working out financial data and running costs is perhaps the most intimidating task for any prospective licensee – especially if you’ve never done anything like this before. Getting these figures right from the start is essential. You need to bear in mind that it is not just the costs of actually buying a pub tenancy or lease, but also running costs. During the transition period, in your first days and weeks, you will need working capital to cover daily expenses. Calculating the amount of money you need and knowing exactly what to expect in terms of profit and expenditure is crucial to your future success.
Fortunately, you don’t have to do this alone. With the support of your accountant and your Business Development Manager, you can draw up a robust financial plan for your business and know exactly what money is needed and where it has to be spent.
Most importantly, you will also know what revenue is needed to make your business break even and make a profit, and where that revenue can be generated.
Entry Costs For A Pub Tenancy or Lease
All the above factors need to be built into your business plan for discussion with your Business Development Manager, and amended as necessary as your application to run a pub progresses.
Costs will vary immensely from place to place, pub to pub. No two pubs are ever the same. Much will depend on the size and location of a pub, the age and maintenance required, insurance requirements and operating style.
Greene King does seek to make this task easier for potential landlords. All the pubs listed on the Greene King website clearly indicate the breakdown of all entry costs. For example if the total entry costs are £16,650, these costs are also broken down according to working capital, stocktaking fees, legal charges, brokers charges, deposit, miscellaneous costs, fixtures and fittings. In addition there are yearly rental charges, with a figure for each pubs' fixed weekly rent too.
You will need to look closely at the agreement terms to identify responsibility for the costs of maintenance and the overall structure of the building. Contractual agreements will also cover the financial details for beverage and food ties, and whether any machine income is free of tie, plus discounts and any potential reduction in rent during the transition period.
When creating your business plan, you will also need to estimate the turnover you expect from your pub, together with food and accommodation profits if applicable. Greene King provide historical trading figures for each pub. The Estimating Turnover section shows several years trading so that you can see how the pub has performed year-on-year, including barrels of beer, litres of wine & spirits, plus litres of minerals the pub sold in a given year.
Knowing exactly what your margins per individual product are is essential. Anyone watching a reality TV show about operating hotels or restaurants such as The Hotel Inspector will be aware that almost the first thing they ask are details of profit margins per product. All too frequently, the restaurant or hotel owners do not know – and this is inevitably a key reason why they are experiencing business problems.
Yet these figures are actually quite simple to work out. There is no mystery involved, or awkward calculations required. All you have to know is how much it costs you to buy and sell a particular wine, beer or meal from the menu. You have to know exactly what it costs you to buy everything, the costs of making a food item. By deducting these costs from your selling price, it will give you your ultimate profit margin.
The task is made even easier for Greene King landlords with our business planning and profit margin templates and calculators. Using these will enable you to identify profit margins within a few minutes. You decide what margin will allow you to achieve a specific price, what price you should set to achieve that margin, and what to charge if you want to make a specific amount of money on that product. The templates cover drinks margins, coffee margins and the costs of providing food. An added advantage is that the food template also helps you forecast potential sales for each food item, so that you don’t over order or create too many dishes that remain unused, thus wasting money and time.
Operating Costs For Running A Pub
When it comes to considering operating costs, you will need start by working out expected sales each week. Deduct from this figure the cost of buying and producing drinks and food, in order to reach your gross profit.
Then you need to identify all your operating costs on a weekly basis. These can include:
- Staff salaries
- Cleaning costs
- Bank charges
- Equipment hire
- Professional fees
- Pay TV
- Miscellaneous costs such as buying plants for the garden, newspapers
The total figure for all these items will give you your total operating costs. By deducting operating costs from your gross profit, you will be able to identify net profits.
Remember too that you will have to allow for costs such as paying taxes like VAT!
Profit levels will vary considerably from pub to pub. A community wet led pub with a turnover of £8,000 per week might enjoy a gross profit of £4,000, and total operating costs of £3,000. A town centre pub/bar on the other hand might have a £10,000 weekly turnover, gross profits of £5,000 and operating costs of £3,000.
Other potential revenue streams may become apparent in due course. These can be added in to your business plan, and your financial data. Often these may require introductory finance such as setting up a micro brewery, payments to performers if adding live music, or a license to show TV sports programmes.
Although sorting out financial data can seem very daunting at first, especially if you are new to running a business or pub; the reality is that by breaking it down into sections, it becomes quite manageable.
In fact, calculating the costs of running a pub is actually a very straightforward task. All you need is the appropriate background information and basic business planning tools.