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.
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.
- 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.
- 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.
- 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.
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 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.
At Get Smart Accountants we work with our clients to drive growth and help them achieve their dreams.
If you’d like some advice or support to get your business moving in the right direction, then we’d love to hear from you.
Call Emma or Paul on 01902 212937