How to calculate the costs of running a pub

Running a successful pub involves more than just a warm smile and a well-stocked bar. To ensure profitability and sustainability, it's crucial to know your operational costs and profit expectations.

For those who are unfamiliar with running a business, navigating financial data and calculating operating costs can seem overwhelming, but it is surprisingly straightforward.

What Support Will I Receive From Greene King Pub Partners?

Happily, with Greene King Pub Partners, you do not have to do this alone. With the support of your accountant and your designated Business Development Manager (BDM), you can develop a solid financial plan for your pub business and identify what money is needed and where it needs to be spent.

This process will also help you better understand what revenue is required to make a profit and where (and how) this revenue can be generated.

In this article we will delve further into some of the costs you need to allow for, as well as explaining how to estimate your turnover and profit.

Is Cash Flow The Same As Profit?

There are two sides to running a successful pub business. The first is making a profit and the second is managing your cash flow successfully.

Sometimes the terms 'profit' and 'cash flow' are used interchangeably but they are two distinct things. Profit is the return that a business generates after subtracting all expenses whereas cash flow is the money that flows in and out of a business. Cash flow represents the resources your business has available to pay its bills and is what drives liquidity and sustainability.

Cash flow costs that are not part of your profit calculation include trade deposits, the acquisition of fixtures and fittings, VAT and tax payments.

What Other Costs Do I Need To Consider?

Entry costs are the costs you need to find up front before you start trading. These costs will vary from pub-to-pub as no two premises are the same.

Every available pub that is featured on our website includes information about the expected entry costs to help you make an informed decision.

Before you get the keys to your own pub, there are a range of entry costs to consider, these include fixtures and fittings, stock, glassware, cutlery, crockery, fuel and cleaning materials, legal, brokers and stocktaking fees, training fees, working capital and deposit.

What Are Operating Costs?

Operating costs refer to the costs incurred to maintain the day-to-day running of your business.

There will be some variation from pub-to-pub but as a rule, operating costs include rent, the purchase of supplies such as beer, other drinks and food (if your pub serves it), staff wages, cleaning costs, insurance, bank charges, equipment hire, paid TV subscriptions, professional fees and utility bills. This is by no means an exhaustive list and there will be other operating costs.

The total figure of all these expenses will give you the total operating costs for your business.

How Do I Estimate Turnover?

Turnover is the total sales made by your business during a specific period, including VAT. The total sales after VAT has been deducted is known as net revenue. It's the net revenue that is key when looking at the P&L.

When considering the costs of running your own pub, you will need to estimate the turnover you can expect and your break-even point, so you know the point at which your business will start making a profit.

How Do I Calculate Profit Margins?

It is important to know the profit margins for the goods you sell.

Profit margins are simple to calculate; just subtract the cost of purchasing an item from the selling price, less VAT - the remaining sum is your profit margin. Most food cost items are zero VAT rated, so your calculation will depend on the item. Guidance on zero-rated items can be found here.

How Do I Calculate Gross And Net Profits?

Gross profit is your net revenue minus your cost of sales. Cost of sales is the term used to describe how much a sale directly costs you. For most businesses this will be the cost of the stock or raw materials necessary to make the product being sold.

Net profit is also known as your bottom line. It's the amount left after you've deducted all your costs from your total turnover, i.e., the costs to you of the goods as well as business overheads, staff costs and other direct costs of the business.

Understanding the costs of running your pub is essential to the long-term success of your business. Armed with this knowledge, you will be equipped to make informed decisions, optimise profitability, and ensure the sustainable growth of your pub.

Although tackling the financial data can seem daunting, the reality is that by breaking it down into sections and with our help, it is very manageable and will ensure that your new business stands a great chance of success.

How Do I Take The Next Step?

Whether you're ready to take on a pub now or still researching whether this is the right decision for you, why not have a chat with one of our team? Call 01284 843200 or email 

Alternatively, our range of webinars provide lots of information on running a pub with us.