If you consider yourself to have the temperament required to be both a pub owner and a restauranteur, then the life of a gastropub owner may appeal to you. The term gastropub entered the culinary vocabulary in the 1990s to describe a bar cum restaurant that elegantly balances a classic pub aesthetic with high-end food and drink – one of the many reasons as to why gastropubs have become a worldwide phenomenon. London’s accountant Tax Agility provides some tips to consider before opening your very own gastropub in Central London.
Why Central London
London leads the charge as the gastropub capital of the world. Home to many cultural attractions, shopping districts, as well as a vibrant nightlife scene and decorated dining establishments, Central London is a bustling hive of activity – and the perfect setting for a quaint gastropub. While the city has cultivated a reputation as a hub for finance and business, it is rapidly becoming the place-to-be for independent start-ups and budding small businesses like gastropubs too.
Choosing a business model
There are typically a few traditional routes into the pub trade, with varying degrees of freedom and financial cost for the proprietor. These are:
- Pub tenancy: The pub operator takes on a tenancy, which is a short-term lease of two to five years from a pub company or brewery. In this case, the pub company offers support by way of maintaining the property. Often there is a requirement to sell the lessor’s beers. This is the lowest cost avenue for new pub operators, albeit with the least freedom.
- Tied or free-of-tie leasehold: This is a longer lease, usually around 20 years, with the licensee enjoying some degree of support from the lessor. Under a tied leasehold, the licensee is required to purchase a large portion of the pub company or brewery’s drinks, though this mightn’t be a constraint if your gastropub focuses on food. A free-of-tie leasehold has no such restriction, meaning you’re able to tailor your drink selection specifically for your food, however, this is more expensive.
- Freehold: This is the most expensive route to acquiring a pub, but the operator owns the property outright and has complete control over the business and its operation.
For a gastropub, a tenancy is usually not ideal as they are not assignable, meaning the agreement cannot be sold for a profit later to another party despite any improvement you have made to the pub and its business. Likewise, good quality freehold options can be hard to find, as not all of them are suitable for conversion into food-based establishments or conducive to fine dining. Tied and free-of-tie leases are becoming increasingly popular for new pub owners due to their greater freedom and flexibility, however, it is recommended that you have some experience in the industry before committing to such a substantial agreement. Whichever option you choose, the pros and cons of each arrangement will need to be weighed.
Capital and business plan
A gastropub start-up incurs considerable initial costs, whichever business model you choose. Operating costs like mortgage, utilities, wages, food and beverages, rent and property upkeep will also take up a hefty portion of your cash-flow. Moreover, a refurbishment or refit might be required to convert your property into a functioning gastropub, which could demand considerable investment, not to mention the task of marketing your new venue and building the pub’s brand. To secure financing for the business, the gastropub owner will need to outline projected costs and revenues realistically, and then write a business plan. Typically, any necessary start-up capital can be borrowed from a reputable bank, however, you should always consult a specialist lawyer or accountant before borrowing or investing.
Pub start-up costs: What does it cost to start a gastropub?
Your costs will vary according to the specific business model you choose, but as a rule, they can be broken down into the following:
- Premises: These include but are not limited to, rent or lease costs, service charges, business rates, waste management, pest control, buildings insurance, not to mention the initial purchase investment for a freehold.
- Food and drink costs: As a general rule of thumb, the cost of food is 35% of the sale price and 15-20% on drink prices.
- Staff wages: Staff costs are fixed and likely to be the largest part of your business’s overheads. You should try and keep this to less than 50% of the total overheads.
- Legal and compliance: As the licensee and proprietor of the business, you will be responsible for public and employee liability insurance, stock insurance, as well as buildings and contents insurance. On top of this, there will also be alcohol licenses and an A3 planning licence in order to serve hot food on the premises.
- Refurbishment and refit: For a gastropub, your priority should be the front of house, including the façade and dining area, as well as toilet facilities and back of house, which includes the kitchen, arguably the most important aspect of a gastropub, and any equipment required.
Rules and regulations of the pub business
Under the 2003 Licensing Act, the responsibility for issuing personal and premises licences rests with local authorities, typically the local council, and is overseen by the Home Office. Businesses such as pubs and gastropubs that sell alcohol are required by law to hold a premises licence. In addition, the owner of the business authorising the sale of alcohol must also apply for a personal licence, alongside the premises licence. This is where the term ‘licensee’ comes from.
A licenced pub must meet the four objectives set out in the Licensing Act 2003: to prevent crime and disorder, protect children, ensure public safety, and prevent public nuisance.
In order to apply for a premises licence your business will need to meet certain requirements. Upon application, you will need to provide: your details, details of the premises supervisor, a comprehensive plan of the premises as well as an operating schedule documenting the licensable activities of the business, opening hours and how your business will meet the aforementioned licensing objectives.
Likewise, when applying for a personal licence, the following conditions must be met: you must be at least 18 years old, complete an accredited training course on licensing laws and the service of alcohol, apply for a DBS check and also have the right to work in the UK.
As well as submitting your application to the local council, you will be required to provide copies to ‘responsible bodies’ for approving your applications. Apart from the local police, these can include:
- Local fire and rescue services
- The primary care trust (PCT) or local health board (LHB)
- The environmental health authority
- The health and safety authority
- The local planning authority
- Local trading standards officers
- Any other licensing authority in whose area part of the premises is located.
A qualified chartered accountant for start-ups such as Tax Agility can advise you on all the regulations you will need to meet when starting your gastropub in London.
Revenue and cash-flow
When it comes to your initial start-up, restauranteurs advise having enough cash to cover the initial cash-flow, as this is the major challenge for most licensees. While operators on a leasehold enjoy a level of security with a longer agreement, there is a risk further down the road with reassignment. This is because many leases hold the original lessee responsible if the replacement licensee fails and breaks the lease, even if they are no longer involved and/ or have sold the lease.
While many gastropub operators thrive when it comes to providing an outstanding food and drink service, they can often fall short at managing the financial aspect which could result in unnecessarily high costs and poor cash flow. As it’s essential to at least break even in the first year of business, it’s vital to have a qualified accountant for start-ups like us to assist.
How Tax Agility can help your gastropub in Central London
As an experienced London-based chartered accountant for restaurants, Tax Agility can offer the new gastropub operator these essential services:
- Assessment of your financial requirements, including advice on finance sources, introductions to banks and helping with the necessary proposals.
- Advice on the most suitable structure for your business – sole trader, partnership or limited company.
- Advice on getting your capital through tax efficient investment structures such as the Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”).
- Preparation of your business plan, cash-flow projections, budgets, and trading forecasts.
- Completion of registration with Companies House and HMRC.
- Management of company secretarial services.
- Advice on setting-up financial, management and record-keeping systems in compliance with statutory requirements.
Call us today on 020 8108 0090 or use our Online Form to set up a no-obligation meeting.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
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