Business Opinion

Support can cost little but save a lot

When you own thousands of tenanted pubs, the degree of support you offer tenants must be a matter of perpetual debate in your boardroom. What is the optimum level of support? What is the level of support that offers the most effective help at the best value for money?

Cast your gaze across the tenanted landscape and you can spot a range of approaches. Admiral Taverns, for example, has hired a three-strong food team with impressive credentials. Another large tenanted operator with many more years of experience is only now hiring a head of food strategy. To be fair, savvy tenants in decent-quality tenanted pubs appreciate an arm's length approach so they can get on with running their pubs without, as it's often viewed, interference from their business relationship manager.

It seems to me, though, that some bits of support cost the tenanted pub company nothing but can mean the difference between success - and leaving the trade tens of thousands of pounds worse off. Greene King introduced open-book accounting for its first-year tenants a few years ago. It means tenants are obliged to sign up with a trade accountant who provides management accounts and other bits of key financial information in the perilous first year in business.

Nasty surprises are removed from the system as licensees stay on top of the cash-flow issues that can sink them. (Greene King tenanted boss David Elliott claims the major problem affecting first-year tenants is that they tend to spend too much on the business.) The survival rate of probationary-year licensees at Greene King has risen from a scarily low 30% five years ago to 90% now. Greene King tenants report that "open-book" is the best piece of support they have encountered.

This week, the company revealed that it had evolved open-book accounting to improve the service. It was bad news for one national accountant, off the recommended list because it can't offer the required understanding of the local area. Greene King's new bean-counters and number-crunchers are MBA Systems, the Pub Accounting Company and GW Cox & Co, all of whom are regarded as being able to offer a more personal approach.

New features of the support package include management accounts monthly for the first three months and quarterly thereafter. Previously, management accounts were produced quarterly. Like new-born babies, fledgling pub businesses often need intensive help in the vital first few weeks and months. A detailed cash-flow analysis will now take place between months three and five, not at the beginning as before. The thinking here is that early spending can obscure the picture - and month three and beyond provides a less-distorted cash-flow study. There are also stock-taking reports undertaken five times a year. Elliott talks about how licensees, confident that they can trust their staff and systems, can easily find their margins awry by 5% or so without these. All in all, "open-book" is about helping licensees apply rigour and method to areas such as cash and stock management.

At the moment, 70% of licensees use their accountancy support beyond the first year, a figure that Greene King is confident will rise as licensees find the service more and more useful. The pubco detractors will wonder whether the tenanted players are taking what they would refer to as a kickback from the accountants who earn a few thousand pounds per annum from each pub. The fact is that, so far, only one tenanted company, a smallish one, has asked for a kickback - and the idea faded away during the negotiation stage. Greene King has used its weight to negotiate a price that's several hundred pounds less a year than tenants of another large tenanted pub company are being charged.

Last week, the MA reported on a spike in surrenders in parts of the industry in the wake of terrible summer weather and the wider pressure on tenants' cost bases. Elliott reports there has been no increase in surrenders at Greene King this dreadful summer. It's a reflection of the quality of its licensees, its pubs and the type of support on offer.