OK, you’ve got me. We accountants can be quite partial to a tipple in our local, so the title of this article might be a little misleading.

I for one class myself as a bit of a real ale connoisseur, so I happen to like pubs quite a lot – as a punter. But as clients? I think it’s fair to say that I’m in the minority of accountants who would class a pub as a dream customer.

In the accounting world licensed premises, from traditional locals to trendy micro-pubs, can be considered troublesome. Managing a public house’s accounts is certainly a specialist area. It can be time intensive and holds potentially greater risks and complications than other businesses.

I do it because I’m not one to shy away from a challenge and I believe the humble inn needs our support.  I believe Britain without the Great British pub would be a much poorer place, who’s with me?! So, I’m willing to put in that extra bit of effort to help keep them afloat if I can.

If you’re in the licensed trade, however, I thought it might be helpful to hear from an accountant’s perspective why pubs might be blacklisted from our books. If I can also offer some tips along the way on how to make yourself a more appealing prospective client, I hope you find it useful.

It’s a tough trade

There’s no doubt it’s a tough industry to succeed in. In the last three years, more than 3,000 pubs have closed – that’s 3 pubs closing their doors for good every day. Much of this has been blamed on the tax pressures pubs face, with £1 out of every £3 spent in a pub being paid out to the tax man. 

These gloomy statistics have spawned the ‘Long Live the Local’ campaign [LINK: https://www.longlivethelocal.pub/] backed by an alliance of pubs, brewers and industry bodies determined to save the lowly local from its depressing demise.

Their petition to prevent the loss of the local led to Chancellor Phillip Hammond temporarily freezing beer duty in 2018. This temporary reprieve may have helped in the short term, but the suspension will be lifted in February this year and a beer duty increase is planned which will impact pub profits once again.

For many accountants, they consider it a risk too far to take on a business operating in such a volatile marketplace where closure and bankruptcy are seemingly commonplace.

My tips:

As with any business, knowing and understanding the numbers (including tax liabilities) is imperative to success. Working closely with an accountant, from the outset if possible, to formulate a robust business plan and keep on top of monthly cash flow is critical in achieving financial success.

Publicans aren’t always business people

This leads me on to my next point. Accountants are understandably wary of taking on publicans who don’t display a fundamental understanding of business and the necessity of financial planning.

An accounting colleague once regaled to me a story of a gentleman about to give up a £40k job to run a pub without employing due diligence in business planning. Within half an hour, my number-crunching friend had picked apart the potential profits and explained how he would be lucky to make a net profit of £12-13k. 

You may be fantastic with people, know your ale, even be a mean marketer, but if you lack a basic understanding of business processes and principles it probably won’t be enough. This is why many accountants will ask a multitude of qualifying questions before agreeing to take you on as a client. They know from experience that when a business hits difficult times, they may spend an inordinate amount of time trying to help and may ultimately not get paid.

My tips:

• Before you plunge into pulling a pint behind your own bar, have a read of this article [LINK: http://www.accountssuperhero.com/hero-tips.asp?id=62&title=How-to-avoid-failure-in-your-first-year-as-a-start-up] which sets out some of the reasons a business fails in its first year. Make sure your head, rather than your heart, is firmly in control when deciding if this is something you can make work.
• Don’t expect to go it alone. You WILL need to employ professional services such as stocktakers and accountants. Make sure you have the right support in place and have factored in the costs for outsourced support.
• If you’re already up and running and finding things challenging – seek help quickly. The quicker you can identify areas to improve the more likely you are to turn things around.

Balancing cash records

Wherever businesses deal mainly in cash, the recording and balancing of income needs to be recorded accurately and closely monitored. Accountants know how challenging balancing cash takings can be in any business. With a busy bar, there are other factors to also take into consideration. There is an expectation that till errors will most certainly happen, especially during busy periods. Throw into the mix that a lot of the staff in charge of cash handling are casual or temporary, often young and inexperienced, might not be the best at recording or (dare I say) even the most trustworthy – and you have a bubbling pot of trouble.

This is why it’s a commonly quoted reason for accountants not wanting to take on pubs as clients.

My tips:

• Make sure you have strict processes in place to show evidence of takings. This includes:
  • Ensure till Z readings are printed at the end of every shift – and keep them!
  • Make sure any till errors are noted down as they happen. It doesn’t have to be an arduous task, a simple post-it note with an explanation popped into the till will suffice. This can then be attached to the Z reading to allow the cash balance to be adjusted as appropriate.
  • Record cash counts on a daily basis and, where possible, ensure the till balancing is done by someone other than the bar staff.
• Record all cash payments made out of the takings prior to banking.
• Only offer customers ‘tabs’ for the evening. Make sure all debts are paid before balancing the tills.
• Choose staff carefully and make sure there is regular monitoring in place.
• Train all staff thoroughly in cash record keeping and till error procedures – and also in managing wet stock.

Managing wet stock

Managing drink stock in a pub is a whole can of worms in itself. It’s far too easy to see profits literally poured down the drain, or people’s necks if you’re not careful. A publican who thinks he’s entitled to his free tipple or can offer freebies as he pleases. Staff who undercharge their friends or take liberties with their own drinks. Wastage such as spilled drinks, incorrect pours and even line-clean or barrel change pull-offs all impact the profit margin and if mishandled can cause serious issues.

Mismatched stock to profit records can cause accountants undue headaches, which again gives them a reason to say no thanks to pubs’ custom.

My tips:

• I always recommend that pub clients have a regular wet stock check by an experienced pub stocktaker who should balance the stock with purchases and sales in the period.  This will highlight any stock losses which can then be investigated and nipped in the bud.
• Thorough wastage records should also be kept, including spillages and staff errors. Make sure there is a recording sheet and staff know how and when to use it.
• If you do offer discounts or freebies, record these too so you can track just how much this might be impacting profits.

Poor PR

This isn’t something I’ve encountered myself, but it is a reason fellow accountants have ceased working with pubs – so I thought it worthy of mention.

The accountant isn’t always a publican’s most popular person. We may have to give bad news on costs that require payment, or pick pub owners up on financial issues that need to be resolved (record keeping or mishandled stock, for example). We also charge for our services, and the more problematic the accounts, the more time we have to spend putting things right which can incur further costs. The disadvantage with *some* pub landlords is, they can be quite outspoken when upset. The last thing any businessman (including accountants) needs is bad local PR, with a well-known local figure bad-mouthing their service across the district because they feel disgruntled.

My tips:

My tip in this case would be to the accountants rather than the pub managers! If you foster a good working relationship with a pub, as you should with any client, bad PR should never be an issue. Support them in setting their business plan and financial procedures up well in the first place, keep lines of communication open and make sure they understand the cost implications of your work (especially anything additional to that initially agreed) and there shouldn’t be cause to complain – to you or about you.

Regardless of all the above, and although I accept they are not always the easiest businesses to account for, I enjoy working with pubs. The key is in making sure the financial recording procedures are in place and maintained. I’ve found taking the time to get that right initially pays dividends in the long run.

With my pub clients, I make sure the cash is balanced monthly at least, we keep a tight control on costs – especially payroll, and monitor stock regularly. I also ensure clients recognise that running a pub is not a license to print money (as some seem to believe)! A well-run pub with little or no food will rarely make more that 10% net profit, and a badly run pub will probably make a loss.

Having a good working relationship with an accountant, however, can often make the difference between success and failure.

Get Smart specialises in helping breweries maximise their profits, so YOU can fulfill your dream! Take the first step today by telling us what you would love to achieve here. 

In my previous article [LINK: Why accountants don’t like pubs], I set out some of the reasons accountants shy away from taking on pubs as clients. While I can understand my fellow professionals’ reticence to a degree, I think pubs can get a bit of a rough deal and shouldn’t be segregated as a greater risk than any other business. I mean, let’s face it, any business can fail if not planned and operated efficiently.

Any accountant doing their job properly should not simply run the numbers, they should be integral to shaping a business plan that will work in commercial terms – and that should be true regardless of industry sector.

With any client, accountants should apply some sensible due diligence before taking on their custom and make sure their business is a viable proposition – or help them address areas that might pose a risk to financial success.

With the points in my previous article in mind, however, I’ve drawn up a list of questions I think accountants should be asking existing or potential pub owners or pub managers before embarking on a professional relationship.

Whether you’re looking at this as an accountant looking to work in this industry, or as an existing or potential pub owner, I hope the following are useful!

1 – Have you owned or managed a pub before?

It’s perfectly possible to start up or buy into a pub business without prior knowledge of the industry, but any and all experience will help! For those who have managed pubs, as opposed to owning their own, however – I would always point out that ownership comes with its own set of rules, especially where tax and accounting is concerned. Pubs are one of the types of business for which capital allowances claims can be very valuable, for example, for the extensive fixtures in the property. It’s worth pointing out the differences, good and bad, to make sure they still consider it a good investment.

If they haven’t experience of either, this may lead to a whole new conversation about expectations and business planning.

2 – Have you run any sort of business before and if so, how did it do?

Whilst there are distinct differences between running a pub to other businesses, knowing a proposed publican has some business acumen and at least a basic grasp of the elements involved in running a successful business (financial management being a big one!), is really important. Knowing that it’s a tough trade to excel in, I would suggest some foundation in business management is essential.

3 – How much spare capital will you have available after any proposed purchase and refurbishment costs?

It’s very rare to buy a pub that needs no initial capital spend to uplift it to a recommended standard. This is usually the reason it’s up for sale in the first place – because it’s tired or lacking something and the existing owner couldn’t afford the upgrade. As a result, it won’t be bringing in the necessary trade to make it a success. If this is going to completely clear out the coffers, however, it would raise a warning flag to me. Like any new business, it will take time to gather speed and start making a profit and there will invariably be other costs incurred to get it up and running. Will they be able to make ends meet until the pub profits meet their financial needs?

4 – Is it freehold or leasehold? 

There are pros and cons to buying a pub outright or entering into a leasehold agreement. It’s important they understand the difference, know what they’re getting into and how each could impact them personally and the money they could make.

With leasehold, there will be a heavy legal document governing how they operate the business, for example. It’s essential they get a legal professional to go through this with them to make sure they understand, and are happy with, all of the terms. There may be hidden clauses in there that could counteract some of their exciting plans or make their business plan completely unworkable.

5 – What are the strengths and weaknesses of other local pubs and bars?

If they haven’t done their market research and scrutinised their competition, then they’re pretty much done for! What works in one area might not work in another. Make sure they’re completely au fait with the clientele of the region and know what the locals want from a local! If all the other bars are sports bars heaving with footy fans and there isn’t a trendy gastro-pub in the area, it’s no good thinking they can introduce something new and corner the market. First, they need to ask themselves why there’s that gap in the first place. Has it been tried before and failed? If all the punters want is a big screen and cheap beer, their business model will need to reflect that.

6 – Does this pub have a solid track record of success with no unwelcome interest from the police or local authority?

A pub can live or die on reputation. If it already has a bad one, it might be hard to change perceptions. Forewarned is forearmed, it’s worth doing some digging to find out some history.

7 – What is your planned strategy to outwit the local competition and gain market share?

Although there are less pubs around now, it’s still a very competitive market with the ones still around all vying for their community’s support and disposable income! Sales and marketing strategy form a cornerstone of any successful business. A pub needs to lure in customers and how they intend to do that should form a key area of their business plan. Addressing this at an early stage and feeling confident that the pub owner knows what they’re doing will give you more confidence in taking them on as a client.

If you own or are looking to buy a pub business and would like to work with a proactive accountant who can help build your business, please get in touch. I can help you work through these questions and ensure your pub business is on the right financial track.

Get Smart specialises in helping breweries maximise their profits, so YOU can fulfill your dream. Take the first step today by telling us what you would love to achieve here. 

Microbreweries could be missing out on thousands of pounds of untapped cash!  

In a recent poll, we found that up to three quarters of craft breweries across the Midlands were unaware of a research and development tax credits scheme that could see much needed funds poured back into the business.

The government’s R&D tax credits scheme is available to any business investing money in innovation, but there is a misconception that it is only available in scientific applications.

Many breweries don’t realise that the development of new flavours of beer could make them eligible to apply for tax credits with an average claim being around £10,000.

In these unprecedented and challenging times, having this money on the way could make a massive difference.

As accountants specialising in craft breweries and micropubs, we know there is continual investment being ploughed into the development of new ales.

The demand for vegan beer in particular has seen this skyrocket over the last couple of years.

R&D can also be used for breweries who have switched to a new way of selling. This could include investment in a new bottling process to facilitate home deliveries after always selling in cask, something a lot are doing at the moment to maintain an income.

These could all meet the criteria that would allow them to claim back cash through R&D tax credits.

Development costs in the brewing process can include buying new ingredients and equipment, time spent in man-hours on research and development and more.

We’re urging breweries to pursue claims from the past two years.

These could bring returns of around half their investment costs – that’s potentially thousands of pounds back in the business.

Microbreweries are still operational and trying to maximise income from consumer delivery services but their mainstay business, supplying to the hospitality industry, has been decimated leaving them struggling to survive.

We spoke to 12 local microbreweries in the West Midlands, which accounts for a fifth of the 54 we know of in this region. Out of the 12, only three were aware of the R&D tax relief and only one of these had pursued it through a formal claim.

If this is indicative of the wider picture, it could mean 75 per cent of microbreweries are missing out on potentially life-saving cash at this time.

Get Smart Accountants is working closely with Helen Gordon of Woodshires, an expert in the R&D claims process, to help breweries submit successful applications.

Get Smart specialises in helping breweries maximise their profits, so YOU can fulfill your dream. Take the first step today by telling us what you would love to achieve here.