Taking the fear
out of finance
Starting out in business can be a daunting prospect for even the most upbeat of characters, but, as GRAHAM RIDOUT explains, proper planning can ease the pain
Arranging finance to purchase a freehold or leasehold of a pub is one of the most fraught experiences imaginable. Equally daunting is the fact that, for many licensees, it will be their first experience of running their own business and all that this entails, such as preparing accounts for the Inland Revenue and Customs & Excise.
Nothing can remove all the anxieties that setting up on your own will automatically bring. Yet these can be ameliorated if would-be licensees follow the Army's 6Ps mantra 'proper planning prevents piss-poor performance.
Chris Heard, director of Marlborough Leisure, which specialises in arranging loans, says banks are only too aware of the high casualty rate in the licensed trade. He explains: 'All lending decisions and conditions of lending are a reflection of perceived risk. If the proposition is presented in a researched, convincing and detailed package, then the lender will feel relatively safe and offer attractive terms or, quite simply, lend where in other circumstances the proposition would be rejected.
Marlborough set up a leasehold loan scheme in 1989, following the Beer Orders that precipitated the massive shake-up in pub ownership. Apart from arranging the loan, Marlborough continues to offer a support package that can include recommending accountants and stocktakers to steer licensees through their first 12 months of trading. Prior to considering any business venture, Heard suggests hosts undertake a 10-point action plan (see 'Top tips for securing finance).
Choosing the right accountant
Choosing the right accountant is an equally important step, as David Jones of licensed trade accountants David R Jones based in Wetherby, West Yorkshire, explains: 'Anyone can call themselves an accountant. Even though there are almost a dozen bodies that regulate qualified accountants, it is still possible for someone completely unqualified to trade as an accountant. Unqualified accountants may appear cheaper, but it's not worth the risk.
The lure of paying lower fees is irresistible to some licensees says Jones. One had accounts prepared that indicated he faced a £5,000 tax bill. 'Within a couple of minutes of looking at the accounts, we saved him £1,500. remarks Jones.
Another licensee faced a heavyweight inquiry by the Inland Revenue 'because the figures that were submitted invited an inspection. He adds: 'By definition, most licensees tend to be nice people who like people. But also by definition, they can be gullible, particularly to telephone sales people offering seemingly cheaper services such as accounting.
A qualified accountant, Jones argues, will not only ensure 'you pay the least taxes that you should legally, but will also come equipped with professional indemnity insurance 'to protect you in the unlikely event of negligence.
Jones advocates that the same approach is adopted when appointing a stocktaker, who should be qualified and a member of the Institute of Licensed Trade Stock Auditors or a franchisee of a national stocktaking network. He says that the combined expertise of a stocktaker and accountant will ensure that accounts are filed properly with a minimum tax burden on the business.
There are a number of comprehensive accountancy and business support services available for pub groups and licensees, such as Milestone LTA, which aims to save licensees time and money by helping run the pub efficiently and effectively. Many licensees find that it's not so much about doing the accounts, as about being given help and time to run the business. Accounting action plan
Top tips for securing finance
Marlborough Leisure director Chris Heard suggests the following checklist:
l Make a list of all assets, including cash, equity in property, investments and life policies
l Decide on the type of pub that best suits your ability, experience and financial resources. Talk to a specialist licensed trade financial adviser, who can advise on price range and borrowing limits
l Contact specialist property agents and provide as much information about your needs as possible
l Prepare a draft business plan and present it to your financial adviser
l Prepare a CV that includes details of your experience in both the on-trade and any other occupations and how these can contribute to the business's success
l Always tell the truth. Banks will investigate your financial record
l When you have found a pub that appeals, prepare a SWOT analysis of the business and its trading potential, especially in relation to nearby competitors. Don't rush into the first pub that you see
l Prepare a detailed cashflow forecast. Take into account seasonal trading variations, capital expenditure, unexpected contingency occurrences, realistic gross profit margins, employment costs and most importantly, your personal spending requirements on a monthly basis
l Use licensed trade specialists (financial advisers, property agents, accountants, solicitors, stocktakers etc) wherever possible
l Protect your credit status. All lenders scrutinise your credit record extremely closely
