How to Sell a Licensed & Public House Business
03/12/2020
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Looking to sell your licensed & public house business but don’t know how?
This guide will take you through the process step-by-step.
With many bars, nightclubs, pubs, and free houses currently up for sale, it is important to use our top tips to make yours stand out to buyers.
It is said that going to the pub is one of Britain’s favourite pastimes.
Going to your local has resulted in a total estimated turnover of £22 billion.
But it’s not just that. Recent years has seen the rise of the micro-brewery. With craft beer increasing in popularity, the country is now outweighing the mainstream beer scene with artisanal drinking.
From drinks production in the brewery, to consuming the drinks in a bar or nightclub, and the licensed trade in-between, this sector is set to grow next year - proving an exciting time for buyers.
This guide will provide valuation advice, tips on how to prepare your business for sale, negotiation information, and how to finalise the deal.
How to Value a Licensed & Public House Business
Each business’s assets will differ according to the type of company you own.
Regardless, for each sale the starting point is the same, each business must combine its assets and goodwill features to gain an exact valuation.
Let’s look at assets featured in a bar’s valuation:
- Equipment such as; a dishwasher, fridges, an ice machine
- Glasses, cocktail equipment, drinks stock
- Fixtures, such as; shelves, booths, chairs, tables, lights & speakers
- IT; CCTV, Point of Sale systems
- Property value, if owning and selling the freehold of your premises
The age and condition of your assets are important in a valuation, so be honest.
The goodwill of a licensed & public house business is a little more complicated to calculate but no less important in providing an accurate valuation.
Using a pub as an example, consider the following:
- The overall capacity of your pub
- The working capacity of your pub. Calculated from the average number of customers per day/night. We recommend gathering data from your systems over the past two years
- Local reputation, evidenced by reviews or social media engagement
We know some owners have an emotional attachment to their business, we also know that this can make it difficult to provide an objective valuation.
For this reason, to obtain a fair price we advise using a business broker.
At Intelligent, we have a dedicated expert team with years of experience in calculating the value of hundreds of licensed & public house businesses.
We use a tailored approach depending on individual businesses, but the basic formula remains the same:
Adjusted Net Profit
This calculation takes into consideration any exceptional costs that the business has incurred. These exceptional costs are not considered part of the normal course of business and should therefore be excluded
Market Multiple
We analyse buyer behaviour and transactions regionally and nationally. We overlay our experience, sector knowledge and understanding of market trends to provide a real time market multiple
Assets & Liabilities
An asset is something that the business owns and is a key factor in determining the businesses value. These include such things as property, stock and equipment. A liability is the opposite of an asset and includes things such as loans, tax and mortgages
Use Our FREE Business Valuation Calculator for an Instant Valuation
How to Prepare a Licensed & Public House Business for Sale
A good starting point in preparing your business for a sale is to have your information and documents ready. This will help you be prepared for questions prospective buyers will have.
Not only will it help to make the process less stressful for you, but it will also make you look more professional and confident to buyers.
It’s not just that.
By fixing any problems with your business you can be assured that you will receive the best possible price.
Let’s look at some important areas to focus on.
Hygiene Standards
Buyers in this industry are cautious about hygiene standards, so it is vital to focus on this.
Fortunately, it is relatively easy and affordable to improve in this area.
Undertake Immediate Repair
Carrying out any maintenance and repair work is an efficient way to boost the value of your business.
Making it more attractive to buyers.
Remember:
Don’t carry out a complete refurbishment or buy new expensive equipment just before your sale.
The buyer may want to refurbish the place to suit themselves.
Equally, you won’t regain the cost of new equipment in your sale price.
Review Your Finances & Documents
Prospective buyers will request at least three years of financial statements. So, have these prepared and ready to show.
This enables a potential buyer to have an overview of your business’s financial health and stability.
The financial documents you will need are as follows:
- Cash flow
- Profit and loss
- Balance sheets
Ensure you’re honest from the start.
As when the buyer undertakes due diligence, any falsehoods within the business’s finances will be discovered.
Other important documents to gather include:
- A list of all assets, such as fixtures, fittings, and equipment
- Up to date hygiene certificates
- Other legal documentation, which may include leases, insurance, licences, and other permits that should all be fully compliant and up to date
- Incorporation documents
- Management structure
- Employment contracts, which should be reviewed by yourself for the buyer’s convenience and to guarantee a strong staff team will be in place
- Stockist information, to demonstrate you have secure stockist relationships already in place
Operations & Management Structure
It is important to have an organised management structure, especially in cases where owners are heavily involved with the everyday running of their business.
Some buyers want a business which can be operated in a hands-off manner, so having this structure in place makes your business more attractive.
To achieve this, you might consider asking your current managers and/or team leaders to take on more responsibilities on a day-to-day basis.
Negotiating the Sale
After successful enquiries and viewings, an interested buyer will progress into the negotiation stage.
Here, you will decide what’s included or excluded from the sale price.
If you have your documents prepared in advance, negotiations will be more efficient.
Remember: this is a two-way process.
Naturally, the buyer will be inquisitive, but you should also be assessing their potential to run a business successfully.
You will need to agree on the final sale price, the sale’s terms, and a thorough itinerary of everything included in the sale.
The agreements will be written down in a ‘Heads of Terms’ or ‘Letters of Intent’ document. Which is to be signed by both parties.
For all intents and purposes, your negotiations are final. However, it is not yet legally binding.
What next? You must then decide on payment.
You could offer a payment plan, with a larger sale price. This is known as owner or seller financing. Or your buyer may be able to pay in a lump sum.
It is important to have a good solicitor you can get legal advice from as you may be at risk of a buyer default.
If you’re unsure of where to turn for quality legal advice, we can help by matching you with one of our trusted partners.
Using an Intelligent trusted partner, you’ll save time and money. Sellers complete on average 4 weeks earlier than the industry standard and our negotiated savings are passed on in full.
One last thing on this.
It is now when the buyer and their team of professionals will carry out the necessary due diligence checks.
For more on this read our in-depth guide, but it essentially involves scrutinising your premises, finances, assets, liabilities, clientele and reputation, as well as external threats and competition.
Finalising the Sale
You’re here, you have arrived at the final stage of selling your business!
If due diligence checks are cleared it will allow the buyer to commit to a final, legally-binding ‘Purchase of Business Agreement’.
The exact terms will be similar to the ‘Heads of Terms’ or ‘Letters of Intent’ document from the negotiation stage.
If any issues arise during due diligence, they can often be resolved with a renegotiation. But worst-case scenario would be the buyer dropping out of the deal completely. Therefore, it is essential to be completely honest throughout the entire selling process.
Also, consider:
Have you obtained all the necessary permissions from landlords and banks for the transfer of premises, equipment, and liabilities?
Once these documents are finalised and the money is transferred, you will have officially sold your business.
Congratulations!
One final thing. Wondering about the handover?
There are two types: immediate and transitional. An immediate handover is a sudden shift of ownership and management. From this point, the new owner is responsible for the running of the business and the seller has no more involvement.
Or, you may opt for a transitional handover. Allowing for a smoother exchange. The transition period with shared responsibility between the seller and new buyer is usually a few weeks or months.
We recommend a transitional handover where possible. It is more attractive to buyers and is more likely to result in successful new ownership.
Related Guides
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Case Study: Licensed & Public House
A Guide to Making Tax Digital for Small Businesses
A Guide to Completing & Filing Your Self Assessment Tax Return
There it is, your ultimate guide to selling a licensed & public house business.
It may seem like hard work, but with a little preparation and planning, you can achieve the best possible price for your business.
By selling with Intelligent, we will take away the stress of selling so that you can focus on your business instead.
Our dedicated expert team will work hard to fully understand your licensed & public house business and what makes it unique, giving you peace of mind.
Why not get a free, instant valuation of your business via the tool below?
Click Here to Use Our FREE Business Valuation Tool
Get quick and easy insight into the real value of your business, without any obligations.
At Intelligent, all of our experts use a specific formula that will give you a free and highly accurate baseline valuation so that you've got a figure to work with that most realistically resembles the value of your business.