Boardrooms benefit from churn

Pubcos are making significant capital out of wannabe licensees who invest their own money in new pub businesses but fail to prosper and soon have to leave.

So says a senior property specialist who claims this is one of the biggest hidden scams facing newcomers to the industry.

Speaking off the record, he told The Publican: "There are plenty of people with little experience who will put up anywhere between £20,000 and £30,000 or more when they decide to take on a pub. The problem is if the business fails they will not see any of that investment again, while the pubco ends up with a property which has been refurbished at someone else's expense."

The charge is that too many pubcos are far more interested in taking on new licensees than they are in vetting prospective tenants' business skills. This is further accentuated by an over-supply of people with little or no experience who want to have a go.

Typical cost of entry into the business is from £20,000 to £30,000, covering stock, fixtures and fittings, plus extra monies if the new tenant has lavish plans for the interior décor. There are certainly likely to be unscrupulous operators taking advantage of this as back-door investment in their estate.

For would-be landlords another potential pitfall is not researching properly and over-paying for a business at its peak. If the outgoing publican has run a successful business he will be seeking a high price for the sale and yet there could be little room to improve.