Have you got the right capital for a pub tenancy?
So you want to buy a pub tenancy, but how are you going to fund it? Here we talk money: where will come from, can you raise the capital, have you got enough?
But first two finance options we do not recommend…
Borrowing Money To Fund A Pub Tenancy
Obtaining a loan to pay for a tenancy agreement is often the first thought in people’s minds. But think again – do you really want to go into a new business in debt?
Loans mean interest rates have to be paid, and these can prove expensive over a long period. Interest rates also fluctuate and may go up substantially thus increasing the amount of money you have to eventually pay back. This can result in a much lower income from your new pub business. Your outgoings each month will be higher.
Other potential landlords consider re-mortgaging their home in order to pay for the tenancy agreement. This means that you will now have a mortgage and rent to pay each month, thus increasing your outgoings. In turn it reduces the amount of money you have to pay bills, deal with expenses and family requirements. On top of that, you have the continual stress of knowing that if you do not keep up with repayments, you could risk losing your property.
Taking out loans and re-mortgaging adds to the stress and worry you will naturally face when starting a new business. In our opinion it really is not a good way to start out, especially when you take on a pub tenancy.
Buying A Pub Tenancy: Good Sources Of Capital
So what are the alternatives to bank loans and re-mortgaging? Begin by taking a close look at your own finances and situation. By putting in your own money, or family money, it gives you a real incentive to focus on creating a successful business and income for yourself.
Have you been made redundant? Some people use their redundancy payment as income until they reach retirement age, others might put it into their pension or savings and look for new employment opportunities. Those looking for a new lifestyle, career and a challenge invest their redundancy money in a business that will provide them with an income and allows them to develop a second career.
A pub tenancy is a great way of doing this if you’ve ever dreamt of running a pub. By putting all, or most of that money into your new venture you can fund your tenancy without having to incur debts. As a result, you will have fewer overheads and can focus on your business. Remember too that you are buying into a proven business concept with a dedicated team keen to help you make it successful.
Inheritances And Investments
Inheritances, family money or fulfilment of investments such as annuities are another method of funding a pub tenancy. Such sums can be quite high, providing money for investment in a new business venture as well as savings and capital to see you through the first few weeks or months of operating a pub. If you are using family money make sure that everyone in the family agrees and is in favour of your new venture. If this is not the case, then the resultant arguments and disagreements can damage your family and distract you from the long-term business you are seeking to build.
Potential pub tenants often use the income from the sale of a house to fund their new venture. This decision does require choosing your pub carefully to make sure that it incorporates suitable accommodation for you and your family. It has to be in an area that you like and will be happy living in. If you have children, check out the nearby schools and transport routes, as well as provision of a private outside garden area where your family can relax away from the pressures of the pub.
Advantages To Self-Funding
By funding a pub tenancy through your own finances, it means that you can concentrate on the business rather than the demands of a bank or mortgage lender. This gives you the space to work on building up the pub and creating a good income for yourself, without the pressures of paying off debt.
By investing your money in a proven business concept such as a pub, you can avoid many of the problems incurred by new businesses. Remember too that in most cases you will be taking over an existing business, and as long as you maintain the goodwill of the customers and keep the business running profitably, you should enjoy a good income.
Key questions to ask yourself when buying a pub tenancy include:
- Has the pub got the potential to provide the income I desire?
- Have I got enough capital to buy the tenancy and also make any further investments needed to maximise its potential?
- Do I have enough money to get the business up and running? Working capital is important for the first few months of any business.
- Is the pub right for me? You will be spending a lot of time in your pub business, if it has accommodation even more. It must be a good fit for you, your lifestyle and your family.
Having answered these questions, you will probably have more. If you would like to speak to myself or another member of the Pub Partners team about buying a pub tenancy, please get in contact. We are happy to have an informal chat about your situation and requirements, and discuss opportunities in the pub business.