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Last chance bill for the saloon trade

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6th Jun 2014
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The pub industry has taken a hammering in recent years, but there are glimmers of hope for those still in the business of drinking and hospitality. Robert Lovell investigates.

This week many pub landlords were celebrating as the government announced plans to curb the large pub companies that have been putting the squeeze on tied pubs with rent and beer price increases. The announcement was made by the Queen in her speech to parliament on Wednesday outlining the upcoming Small Business, Enterprise and Employment Bill.

The Queen said bill will bring in a new statutory code and independent adjudicator to “increase fairness for public house tenants" who run 20,000 or so tied pubs across England and Wales. The bill will be published on 16 June and should be enacted before the general election next year.

With much of the focus on pension reforms in the Queen’s Speech, not many people noticed the new pub reform proposals.

Over the past 20 years pub companies have acquired thousands of pubs funded by huge amounts of debt. Their need to service interest payments along with tax increases have pushed up the price of a pint.

Against this backdrop, an average of 28 pubs are closing every week and some mangers tied to the big chains have said they can’t make a living, with half earning less than the minimum wage.

On the day Fullers of Chiswick revealed an increase in profits by 10%, chief executive Simon Emeny was disappointed the government planned to introduce legislation.

Emeny told the Today programme on Radio 4: “We would have preferred self regulation. We think that the industry is dealing with its tenants very well. However, having said that there have been so many enquiries into tied tenants over the last 20 years... it would be good to draw a line under this and for the industry to have some sort of certainty going forward.”

The last six years have been incredibly difficult, he continued: “We’ve been coping with a regime where beer duty has been increased by 42% over five years – one of the highest rates in Europe.”

The industry's plight has played out on AccountingWEB with regular reports and questions about clients in the pub trade struggling to stay on top of cash flow.

In his submission to last year’s Practice Excellence Awards, Chris Macleod of Oaktree Accountancy explained how his firm had helped several struggling publican clients to escape the industry in one piece. In one case, the firm's cash flow forecasts made one client realise they had to quit the trade completely, as the brewery deal on offer was not viable unless takings increased by 40%.

Macleod told AccountingWEB: “I’ve looked at 20 leasehold pub deals and all 20 were non-viable. Sadly some of the 20 refused to believe my advice and learnt the hard way. I have some clients making good money from pubs and hotels - they are all freehold.”

But the good management accounting and financial planning has also helped some pubs stay afloat.

Tracey Dale of the Fairham public house gave a glowing testimonial for her accountant, Practice Excellence Award-winner Coalesco Certified Accountants. Things came to a head for Fairham when she had a crisis meeting with the brewery and the accountant arrived with a quarterly management reporting pack, featuring coloured graphs and a focusing on gross profit, wage cost analysis and fixed overheads. 

“It made me realise what I hadn’t been thinking about and gave the brewery many ideas as to what support we needed and why as well. The result was lower prices from the brewery on our two key lines, which increased our GP by 2.4% and a price decrease on a pint of 10p.

“This increased sales on profitable lines. I reduced the wages bill by 18 hours per week from the analysis, saving us money, and also re-negotiated some of our entertainment costs that I had previously not been able to see,” Dale said.

Coalesco's Linda Frier, who has several clients in the industry, told AccountingWEB that cashflow remained a significant problem. “We have a number of clients who have not renewed tenancy agreements or been forced to close due to high fixed costs (predominantly rent) over the past five years. Overall [the small business bill] is good news for the sector,” she said.

Marketing man and pub owner Chris Allcoat also came up with some sound financial advice on the AccountingWEB LinkedIn group: “Having clear financial information such as daily take by product line, regular stocktakes so margins are achieved, check bank account daily (it’s a cash business after all) and knowledge of what the B/E is - that's the minimum. Then growth can come from a carefully researched plan of action.”

Debbie Cockerton, a partner at DCA Business Recovery, looked into the pub trade in a recent article on the ICPA supplier page. Breweries were squeezing small pub owners' profit margins too far with higher rents. The good news, however, is is that the number of pub and restaurant insolvencies are stabilising. Business failures in the sector were down 10% in the first quarter of 2014 compared to Q1 2012.

“The change may be attributed to the Budget, where the price of a pint of beer was cut by 1 penny. In addition the alcohol duty escalator (previously at the rate of inflation plus 2p for alcohol) was abolished for beer,” Cockerton said.

She added that businesses are still at risk as competition between traditional pubs and newer, often cheaper, pub chains continues.

AccountingWEB member mrme89, meanwhile, advanced the theory that millennium eve was one of the biggest factors in killing the pub trade.

“At the time, every pub/club thought they could charge an arm and a leg to get in (some of my local pubs were charging upwards of £100pp entry). People at that point realised it was cheaper to have friends over with a takeaway and a bottle or two of wine/beer and could still have a good evening.”

Do you have any pub clients or are you the FD at a brewery/pub company? What are some of the accounting and finance issues affecting the pub trade?

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By carnmores
11th Jun 2014 13:25

great title

the tie per se is not a bad business model but it needs to be properly operated, the reason for this bill is that self regulation isn't working. Simon Emeny needs to reevaluate what he is doing or he is going anagrammatic. The real problem with these pub companies is that they are de facto property companies. Rent, Rates and Banks are responsible for most of the ills in todays society  or shall i recategorise that's as Greedy, Wasteful and Ignorant?

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