Business plans, Profit and Margin

Profit Margins General

Businesses operating in the licensed trade differ widely. The basic local pub running on low prices and very low profit margins (because it is tied for beer supplies), where the gross profit might be around 40%, through to the city centre venue operating in a key location with top prices and large free trade discounts. The gross in these units can be over 70%. Understanding and knowledge of the accounts of businesses, their profit margins and overheads is essential.

Typically in a normal leasehold, where the tenant is tied to a Brewer or Pub Co. for main liquor supplies, the gross profit can be between 44% and 52%. Freehouses with discounts per barrel, (you will be in the position to negotiate your own discounts), of over £100 per barrel ( 36 Gallons)  can achieve gross margins of well over 60%.

Your lease and the terms that its written under will determine your "bottom line" trading profit (after staff wages but before any payment to the property owner) of 10%-15% of the VAT exclusive sales. Freehouses can often achieve net profits of 20%-35% of sales.  Profit margins however are usually determined by the style and size of the property, how many staff you require and trading patterns.  It would be unrealistic of Knipes to give detailed information on sales relating to wines and spirits however general statistics indicate that city centre venues, in particularly young persons venues sell less beer but more bottled beers and FABs, and in local pubs approximately 80% of trade is from beers and ciders.

Rent generally ranges about 10%-15% of sales. 20% is usually unsustainable if you are in a business that has accommodation and food opportunities this may differ. 

With a freehouse, with a business of reasonable size i.e. sales over £180,000 per annum a net profit of up to 25% should be achievable.

BUSINESS PLAN general

Before you start a business plan you should be sure yourself that the business is feasible and then you need to convince a lender, if you need to raise finance, (or in the case of a lease the Pub Co landlord) that you can trade successfully meeting your obligations in terms of loan repayments or rent. A good and ably researched and thought out Business Plan will provide all your answers.

Your plan will need to have as much information as possible about the pub in question. 

Its important to remember that a pub is as good as the current land landlady/lord and you should incorporate into your business plan how you will change the current trading patterns of the business.  "What is it taking a week?" and "How many barrels is it selling?" are relevant questions and these should may be how you begin your plan and what you will be working to change for the better within your current ability.

Knipes has contacts with Leading professionals that can help and guide you through this process.