How to create a profit and loss forecast for running a pub

When starting a business, your number one objective has to be making a profit – without this, you simply cannot survive. And running a pub is no exception to this. From the moment you consider taking on a pub, you must consider your bottom line, and a profit and loss statement is integral to this. Expenditure should never be greater than your income and your pub must be capable of making a profit at every point.

We appreciate that creating a profit and loss statement may seem daunting if you’ve never done it before, especially if it’s for a new pub that you’ve yet to run. But with the right support from your pub operator, you can ensure you get off on the right foot and prime your business for success.

When you take on a pub with Greene King, you will be assigned your own Business Development Manager (BDM) who will work closely with you to create a business plan, including a profit and loss statement, that meets your objectives and generates profit.

Once you have found the right pub for you, at Greene King, we will provide all the background figures you need to give you a complete picture of the pub’s success so far – including trading volumes for the past three years. This will then enable you to judge sales levels for the different drinks and services offered in your new pub.

Where do I start?

Every product you will sell in your pub has a profit margin and you need to know what that is, and where the highest profits are being generated. Is it via food, wine, beer, accommodation or events? They need to be comparable on a like-for-like basis for both sector and individual products.

It’s an important distinction to remember that profit margins are not the same as turnover or revenue. They are referring specifically to the money you make on each product you sell, rather than the overall sales figures.

So, the key to success here is recognising which activities bring in the most customers and which bring in the most profits – and it’s a delicate balancing act to achieve both, as well as being aware of the problems caused if one side grows more than the other. For example, if customer numbers rise, but the profits don’t!

Once you have the background information, provided by your pub company, then identifying profit and loss margins is very straightforward – and in fact, becomes a simple administrative task that won’t take long to do on a regular basis, allowing you to monitor these margins frequently.

You must also consider the difference between cash margin and gross profit – for example, selling champagne might give you a gross profit of 30% on a high value item, whereas a single vodka and coke has a gross profit of 85% but it provides a much smaller cash margin as it’s a cheaper drink. Having a balance between the two ends of the pricing spectrum is an important facet to consider.

What about my cash flow?

It’s very important to consider your cash flow from the moment you are looking into taking on a pub. You must make sure you are managing a healthy cash flow and have finances in reserve in case unexpected costs occur – such as a VAT bill or building repairs for example.

You may have a natural instinct to invest and improve in your pub, especially if you have just taken it over and want to make your mark on it. However, you must consider what benefit this will bring to the business; it will deplete your cash flow and if it’s not going to generate additional income, then think carefully before you invest.

Are there any tools to help me?

It can feel overwhelming having to work out profit margins, cash flow, forecasts etc. But at Greene King, we have created a range of easy-to-use tools that can be accessed online.

These tools can help with margins, gross profit and set retail pricing – and they’re all accessible via our in-house intranet, so they’re there whenever you need them.

The drinks profit margin calculator allows you to insert your figures, VAT rate, cost price per container excluding VAT, the container size, selling price per pint. The calculator immediately indicates the results based on the information you have provided. We also have similar calculators for every type of product sold in the pub such as wines, spirits and food.  All you have to do is insert your anticipated purchase price, planned selling price, and then find out your profit margin.

Greene King also has specific Drinks Margin templates that can be downloaded for use with Microsoft Office or Open Office. You don’t have to do it on your own!

How will I keep it all up-to-date? 

Regular checks are essential – but it doesn’t have to be an onerous task. With the templates and calculators provided, you can do it painlessly and on a regular basis to ensure you have a 360 degree picture of what’s going on with your bottom line.

Ideally, you should set time aside each week (why not do the same time on the same day to create a habit) to check your profit margins. You can then create a list of all the products and services you’re selling or are proposing to sell. Make a note of the purchase price against each name and then decide what you would like to sell that product at, taking account of any taxes involved. Once you input the information and press enter, your margins can be clearly identified. With practice, you can do this on a daily or weekly basis to take account of any purchase price changes. It is very important to do this on a regular basis as it can make a tremendous difference to the success of your pub.

This information also allows you to recognise potential opportunities. You can encourage your customers to try drinks which offer higher profit margins, or use add on services such as buying snacks with a drink. You can also take advantage of emerging trends that can offer higher margins because they involve premium products.

Is there any additional support available?

If you feel like you need further support than the online tools, then Greene King offer an array of excellent award-winning training courses, designed to help you every step of the way. And your BDM is always at the end of the phone to support you.

The training courses include induction training, financial controls, driving profitability and much more – all designed to help you feel confident and in control of running your pub and importantly, making a profit!