A price for your pub

It's time to sell up, but do you really know how much your pub is worth? Michelle Perrett investigates.​You're thinking it's about time to put your pub up for sale and you call in an agent to give you a valuation. But have you ever wondered how they decide what price to put your business up for?The procedure of valuing a business is pretty simple - the agent will survey the physical assets of the property (buildings and the land) and will conduct a financial and business analysis. Obviously the price you get for your pub will also depend on whether you are selling a freehold or leasehold property and whether the lease is tied or free-of-tie.Initially an agent will come and look at your premises to consider, for instance, how many bars, seating, average spend per head, whether the pub advertises locally, opening hours, how many staff there are and what licences the premises has. He will then look at the strength of the business and where there may be potential growth. This may include whether there is a potential to improve the food offering, any unused garden space that could be used in the summer or if there is room for a conservatory - a pub with growth potential is easier to sell.Factors such as the pub's location, dilapidation of the property, incoming repairs, size of owner's accommodation, whether it's a rough city boozer or is a quality pub operating in an affluent area, will all be taken into account by the agent. If the site is a leasehold the exiting licensee should consider asking their pub company to grant the new licensee a full 20-year lease. This will enable the new buyer to get a better mortgage rate and therefore could improve the price of the property and make it easier to sell. An agent will then use comparable evidence to analyse the fair maintainable level of trade and profitability of the site - that is, how much similar pubs in the area have sold for to give an idea of how much the property could be worth.But for anyone selling a pub the key element is not only the value of the actual property but, more importantly, the strength of the business. The value of a pub, therefore, comes down to basic commercial considerations - the more money your business makes the more you can sell it for.Therefore it is essential that, in order to get the best price for your business, you have three years' accounts available for the agent to look at. This can prove the strength of the business and how consistent the trading in the site is or has been.Neil Morgan, director of agents Christie & Co, specialises in valuing pub businesses. He says: "You value pubs on comparable evidence and accounts are the most important - especially on leases."If the pub suffered because of foot-and-mouth the accounts can show that this was a blip year."When selling a pub you need a copy of the lease and accounts - otherwise it's like selling a car without the logbook."Initially the agent will look at the gross profit margins on the site - this means the gross profit as a percentage of turnover - to get an idea of how well the business is operating. "If the business is 100 per cent wet-led then gross profit margins should between 49 to 52 per cent, if the majority is food then 65 to 69 per cent. If it's a mixture of food and drink then 63 to 64," says Mr Morgan.Also the salaries of staff need to be checked against the turnover of the business. Mr Morgan says: "If it's a boozer, wage costs against turnover should be around 12 per cent but if it's a food pub it will be higher at 18 to 22 per cent, because of the costs of a chef."The agent will make an assessment on the pub's last 12 months trading and work out its reconstituted accounts. This means that the financials of the business are analysed and adjusted to reflect any lost opportunities, additional costs and any inefficiencies that are taking profit out of the business. It is important to bear in mind that agents such as Christie & Co always assume that the business would be run by a partnership. "We value everything on the basis that a couple are running it," says Mr Morgan. For example, if the current licensee is running two cars through the business that would not be seen as an essential cost while a manager's salary would also be regarded as an additional cost.This means that the agent can make sure that it is getting a clear picture of the potential profits of the business and will be able to sell it at a premium price. So once the finances have been looked at and all the exceptional items have been deducted then the company can make a full valuation of the business. It is at this point that the method of valuation between leasehold and freehold premises change. For a freehold business Christie & Co will make a valuation based on the reconstituted net profit of the business. In general, according to Mr Morgan, most leasehold properties are valued at 2.5 times the reconstituted profit. Freehouse valuation, though, is generally based on the turnover of the business.Mr Morgan said: "For a freehouse generally it's a multiple net of turnover that counts - anything from one to two but certain areas go over that such as London and Surrey."Pictured: Freehouse the Unicorn Inn in Midhurst, West Sussex, was sold for £430,000 - twice its turnover.​Leasehold Pub: Profit and Loss Sheet​

* These figures are additional items that are reducing the pub's profits

Value based on multiples of net profit: ​61,300 x 2 = 122,60061,300 x 2.5 = 153,25061,300 x 3 = 183,900Armed with the financial details, details of the premises, comparative figures and an understanding of the pub market, the agent will then make the decision on what the property should be marketed for. If you want a quick sale then they will advise you to take the lower value at two times the reconsti