Some food pubs are at the high end of the dining experience (gastro pubs, pubs with dedicated restaurants) and may achieve a higher gross margin for food, whilst those that have a snacks menu or uses its food as a loss leader will achieve less.
‘Other sales’ can achieve a gross margin of 30%, and over 30 years of experience tells me that there is no set level of margin you should aim for, you just try to make as much as you can.
From these combined gross margins you will see a total gross margin, for the final calculation of your Gross Profit you need to add in the income you receive from your Amusement With Prizes (Fruit Machines), Pool Table, Juke Box, Quiz Machine, Vending Machines Income net of costs and duty.
If you are tied for machines, your landlord and machine operators will take their share before handing over what’s left. If you are free of tie you will need to account for rent, gaming machine permits and gaming licence to get the net figure. In either case the Machine Game Duty (MGD) payable to HMRC from the net machine income. (See separate article on MGD).
The Gross Profit (all the profit you have made so far) is important in calculating the Break Even Point (which I will discuss later).
So now you know how much money you have to pay all your other bills, pay your rent and your staff or in other words the Overheads of the business. A fundamental principle you must grasp is that there are only two ways to reduce the percentage that overhead represents as a proportion of sales; you can reduce the overhead cost (whilst maintaining sales) or you can increase sales (whilst maintaining overhead costs at the same level).
For the purposes of any P&L you might prepare for a business start-up or taking on a going concern let’s assume the business is operating at maximum sales for that period. (i.e. you could not have / cannot envisage having generated more trade than you / they did.)
Rent or Mortgage
First on the list is the Rent you pay to your landlord for the use of the premises, as a rule of thumb I would hope to see a figure of 8.5% (or 1/12th of your sales i.e. one month) for rent. Yes! This means that a whole average month of every year is devoted to paying the rent; if the figure is larger you really need to ask if you want to pay that level of rent or whether you want to do something about reducing that percentage.
(If this were a freehold you would substitute mortgage payments and again would you want to work for your bank for more than a whole month every year without making any money?)
To commission a bespoke Rent Estimate Report from How To Run A Pub for any pub you are considering click here.
Landlord’s Building Insurance is the amount you pay (under the terms of your tenancy or lease agreement) to your landlord for them to insure the premises. I would expect to see a figure not exceeding 1% of sales and you can make savings here as many pubcos are now allowing tenants to seek an independent insurance (that matches their cover) that costs less than theirs. The lion’s share of any insurance premium will be to reinstate the building in case of total (catastrophic) loss (say your pub is burnt to the ground). Do not confuse the reinstatement value with the market value of your pub; the former will always be significantly higher than the latter. If this were a freehold pub then you would just call it Building Insurance and you would arrange this cover for yourself.
Lessee’s Insurance (sometimes called Tenant’s or Contents Insurance) this would be the cover you arrange to insure your inventory, stock, cash etc and any items of the landlord’s property on the premises. You will also be insuring against claims from employees and the public.
See my guide to pub insurance for further details.
We all have to have a Personal Licence and a Premises Licence for the pubs we run and you should make provision for these costs in this section. Whilst you will not be spending out on either the Personal or Premises Licence every year, you will probably apply for Temporary Event Notices for extended hours or outside functions so putting a figure in for this is essential.