How to start a pub

After the dismal experience of multiple COVID lockdowns, customers across the UK are thirsting to get back to the pub in their droves. But, while consumers celebrate the return of their local haunts, now is the time to exercise caution if you’re thinking of launching a pub of your own.

UK pub owners are being hit at all angles by labour shortages, supply chain difficulties, and astronomical price increases in energy bills. Many have already been forced to close and as we approach a recession, it’s certain that more will follow.

For new pub developers, this means caution as well as opportunity. Alongside an eager consumer base, there are also some ready-made premises to be snapped up and relaunched. But it’s not like the old days. The most succesful pubs are now gastro or themed establishments that know how to cater for a modern clientele.

In this guide, we’ll explain what you need to know about opening a pub including choosing a location, agreeing a rent arrangement, picking a payment system, and getting an alcohol license.

The first step to starting any business is sourcing funding, but it can be difficult to know where to start. Use our free online comparison tool to compare the best business loan providers across the UK, and have a sip of the freshest deal available. 

What does running a pub business involve today?

The pub industry is one most us are familiar with, which is one reason why many people are tempted try to start a pub. In 2020, according to ONS data, there were 58 pubs per 100,000 people in the UK.

However, for the various national and regional lockdowns between 20 March 2020 and 4 July 2020 nearly all pubs, cafes and restaurants in the UK were closed.

During this time, the entire industry suffered as footfall declined and consumers stayed away. Some restaurants remained open for delivery and takeaway, but the industry was dramatically thinned.

How has COVID-19 changed the pub sector?

The accommodation and food service industry experienced the largest decrease in working hours of any industry, according to figures from the ONS. During lockdown, hours worked for restaurant employees were down 65% over 2019, compared with a 24% decrease for all other workers.

The chaos of lockdown and the changes caused by the coronavirus have created a challenging environment for the pub industry – but they’ve prompted some creative thinking, too. Pubs are becoming more ambitious, especially with the growth of pop-up bars, and customers become increasingly demanding, which can be healthy for profits.

In addition to this, the fact that over a billion pub meals are now served in the UK every year shows fewer people are now content just to go to the pub for a couple of pints of lager. So although the traditional pub is changing, pubs remain central to the British way of life. However, running a pub isn’t for the faint-hearted. If nothing else, it’s hard work.

As generations of retired footballers have found to their peril, being a pub owner requires commercial awareness and business knowledge. You’ll be managing a team of staff, so will also have to keep on top of employment law, management techniques and training.

You will also have to know about licensing laws, as well as health and safety and food hygiene.

If you dream of running your own pub, you probably already have an idea about what kind of pub you will be managing. With a greater variety of pubs than ever, your choice is whether yours will be a countryside-based local pub, a trendy, inner-city bar for a younger, night-time crowd, or one of the huge variety of businesses between these extremes.

How do you choose a business model for your pub?

The most important decision to make before taking the plunge is whether to run a lease or a freehouse. The majority of pubs in the UK are not independently owned; with many being owned by a pub company; although the brewery-owned pubs are increasing as more open.

This makes running a leasehold the most popular option, as it is a much cheaper route into the pub business. You effectively buy the business, but not the property, and can sell it on that basis. You rent the pub from the pub company or brewery, with rent negotiated between you and your landlord, and then trade as a sole trader. You keep all of the profits of the pub, except that from games machines, which is usually shared between you and the pub company or brewery.

A leasehold can either be tied or free of tied. A tied leasehold means a considerable proportion of your drinks have to be bought from the brewery, so you can’t shop around to find the cheapest prices or particular brands you’d like to stock.

A free of tie option provides the independence of a freehold without the cost, but is still more expensive than a tied lease.

If you decide instead you would rather have complete control and be a free-trader, you’ll need to put in much more investment up-front. You will have to buy the business and the property, making it the most expensive way to enter the trade.

However, you will be responsible for all decisions concerning the business, and you can make deals with whoever you like for products and services. You also have the long-term property appreciation. If you make a success of it, the rewards can be huge .

Before you start taking the first steps into acquiring a pub, it is crucial to draw up a business plan. A business plan is crucial to understanding what you want to achieve, how much money you have and what you can afford. And, of course, you’ll need to show a business plan to the brewery or pub company when applying for your pub.

As for the pub itself, in Coltart’s words, it’s a case of ‘location, location, location’.

“This is the most important thing to get right. Look what’s around you, the footfall, the competition, the transport, parking and general demographics.”

Also, make sure you get a proper survey of the building as this can save you a fortune later on, and ensure the building meets fire safety and environmental health regulations.

Pub start-up costs: How much does it cost to start a pub?

Tenancy costs start at around £20,000 and go up to £50,000. This pays for the fixtures and fittings and a deposit covering you if you can’t pay your drinks bill. The rent depends on the pub – its size, what type it is, whether it serves food and so on – but is generally estimated at about 12% of turnover.

The market is very competitive so it’s best to write out a business plan and consult a specialist lawyer before investing.

Buying a leasehold is complicated because the performance of the business will determine the amount you have to pay for the goodwill of the company. This will be negotiated with the previous leaseholder based on the accounts for the business in addition to the fixtures, fittings and stock. Prices can start as low as £30,000 but rise steeply for more successful pubs.

A tied lease is the cheaper option. The premiums on this type of lease, where you have to sell the drinks sold to you by the brewery, are lower or sometimes even non-existent.

Remember that you’re not just paying for the premium on the lease, but all fees, stock and staff as well.

The most expensive option is buying a freehouse, which will include the value of the building, the fixtures and fittings and the business as a going concern. The cost of a freehouse is often around one and a half times its turnover and prices usually start at around £120,000. Prices can often be much higher than this though, as independent buyers compete with big pub companies. Coltart points out that in a major city, particularly London, the initial investment could be around £3m.

Once you’ve found a business you like, you’ll need to finance the purchase.

Most lenders will provide up to 70% of the price of a freehouse. Some of the rest of the funding needed can be obtained from a brewery loan but this would come with ties and may limit your ability to negotiate stock prices and develop the business as you wish.

You would then need £5,000 to cover incidental costs (legal fees etc.) and £10,000 for stock and as insurance against a low period, adding up to a total of around £50,000. As the size of the pub and the profitability of the business increase, so will the amount of investment.

“A strong track record in the trade will inevitably mean you are more likely to secure better start-up finance. ‘Do what you know’ is one of the basic rules for a business start-up and, statistically, experience increases the chances of success,” adds Andrew Turzynski, senior business manager at First National Commercial banking.

Once you’ve got your pub, as with any business, you need to make sure exactly what is eating into your revenues.

Wages, for example, can often be a big stumbling block for the unprepared, says Richard Coltart. “Wages will cost in the region of 20-25% of the exc. VAT turnover, including the manager. If you’re managing it yourself then it will be slightly cheaper.”

What skills do you need for running a pub?

Landlords come from all walks of life. “Licensed retailing can give the right people (young and old, male or female) hugely fulfilling and varied careers; and if they prove themselves, they can be offered challenging responsibilities at an early stage,” says John McNamara of the BII.

The two essential qualities you need in order to run a pub successfully are business awareness and enthusiasm for the pub trade.

You should also get experience working in a local pub if you haven’t already had some. Not only does this give you a practical insight, it could also help you work out the type of pub that would suit you.

More important than your previous occupation are the skills you have and your personality.

“You have to be very social,” says Coltart. “It’s bloody hard work, the hours can be extremely long, but it’s great fun. There’s huge camaraderie with the customers and the staff.”

What rules and regulations are there for running a pub business?

To sell alcohol for comsumption on your premises you must have a licence. Following the 2003 Licensing Act, the licensing regime changed and the responsibility for issuing personal and premises licences rests with local authorities.

A pub must meet four licencing objectives: prevention of crime and disorder, protection of children, public safety, and the reduction of public nuisance. Designated premises supervisors are responsible for ensuring that the pub meets these criteria.

You must be over 18 years old, have no criminal record, prove that you are a ‘fit and proper’ person and understand your legal and social responsibilities.

Candidates are advised to hold a British Institute of Innkeeping (BII) National Licensee’s certificate.

Although this is not a guarantee of success, it will prepare you for the application. If you plan to develop the catering side, you will also need to contact the local environmental health department to ensure you meet their standards.

If you’re a newcomer to the industry you will also need training. The landlord will often run an induction course for people entering a lease. As well as covering the licence application, this will also introduce you to all the skills you need to run a business successfully, including legal skills; financial management; marketing; beer and cellar skills; and food hygiene. There are also training courses for experienced licensees.

How much can I earn as a pub owner?

Although many people love running a pub because of the lifestyle it entails, it’s also a business which can prove extremely lucrative.

The size of the pub will naturally affect how much money you can make, but in general the net profit should be around 20%-25% of turnover.

Owning a successful freehouse is where you can really rake it in. The profit will not be eaten up in rent, although you may have a large mortgage. And when you sell up, the growing strength of the property market means you can maximise your investment.

So what’s next? Software is an important first step when you’re looking to start a small business. Hospitality and leisure firms, in particular, rely heavily on EPOS systems to manage and enable cash transactions; here on Startups.co.uk we have a guide on to the best pub EPOS systems.

Our online comparison tool is also free of charge and has been designed to help you find the best deals and savings by giving you quotes from the top EPOS system providers in just one minute.