How to Buy, Fund and Open a Pub
Become a pub landlord with Rangewell's support
The UK’s pub industry is a turbulent one, offering near-constant fluctuations in profitability and longevity. Despite recent growth in the sector following COVID-related disruptions, rising costs have created new challenges for pub owners. These same challenges and pressures, however, also create new opportunities for ambitious individuals looking to buy a pub.
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If you’re looking for information on how to buy a pub, you’re in the right place. This guide will look at the buying process and help you understand how to finance the entire purchase. Whether you’re an existing pub owner or an ambitious manager looking to step into ownership, buying a pub is generally a more effective route than starting one from scratch.
Here at Rangewell, we’re experts in arranging finance for hospitality businesses – including those in the pub sector. Whatever your background, we can help find lenders willing to offer the funds you need to buy a pub. Get in touch using the button below, or continue reading for our full guide on how to buy a pub.
How to buy a pub: rent vs lease vs freehold
When it comes to operating a pub, most people consider leasing in the same breath as buying – even though they’re different terms with different connotations. There are actually three different ways to ‘own’ a pub, where ownership is considered being the acting landlord.
Renting a pub
Renting a pub, also known as a pub tenancy, is where you’ll rent a pub from a brewery or a pubco for an agreed period of time. You’ll become the active landlord and will be responsible for running the pub and generating profit, some of which you’ll use to pay back rent.
Before you start operating, you’ll have to buy fixtures and fittings (such as refrigeration and serving pumps etc) as well as any stock at an agreed value, which you can then resell back to the brewery when your tenancy ends.
Throughout your rental period, you’ll be locked into a supplier relationship with the brewery or pubco you’re renting from – meaning you’ll have little control over what you stock. However, this can be a good thing too as breweries will generally offer lots of support and training to help you sell their products.
As with residential tenancies, your landlord will be responsible for maintaining the pub. You’ll need to sign a tenancy agreement that covers an agreed, fixed period. If you want to leave the agreement early, you’ll need to serve notice as allowed within the agreement – so it’s important that you review any tenancy contract before signing.
Whilst renting a pub is often a good way for a new publican to get experience in the industry, you can’t sell any goodwill built within the business and subsequently, it doesn’t suit ambitious owners looking to operate a pub for profit and investment.
Leasing a pub
Choosing a leasehold agreement is a longer-term commitment than renting a pub. Usually, leases are for terms of between 10-25 years and you’ll pay rent with a review every 3-5 years. However, unlike tenancies, you can sell your lease on after a certain agreed term (usually 2 years), which means you can often make great profits if you can grow a pub and its customer base enough to make the lease valuable.
Like a tenancy, you may have to agree to the brewery or pubco’s terms around buying stock and operating under their guidelines. You will, however, be fully responsible for repairs and maintenance within the building despite not owning it outright – so it’s vital you get insurance that covers your needs and that you understand the full terms of your agreement with the owner.
Leasing a pub is often seen as a more affordable entryway compared to buying one, though it still comes with plenty of costs which people overlook. It may come as a surprise to learn that hundreds of potential owners turn to Google each month to ask how to lease a pub with no money – demonstrating that leasing is considered more approachable. Fortunately, there is a route to leasing without needing to have much capital saved – all you need is the support of a financial lender, whether that’s a bank or an independent provider.
Buying a pub
Owning a pub outright means buying the freehold, which means owning the building, land and contents of the land in one go. This is obviously the most expensive option, but one that grants total freedom for owners – who will be fully responsible for all aspects of operating the pub and command total authority over every buying and selling decision made.
Buying a freehold is an exciting opportunity but it’s one that comes with plenty of financial caveats – not only do you need to raise the capital required to fund the purchase, but you also have to ensure you’ve got sufficient cash flow to accommodate for all of the costs associated with owning the building.
See our full guide to buying a pub freehold for more information on this specific path.
Researching your opportunities
Before you decide which ownership option is right for you, we’d encourage all prospective landlords to do research into industry and your chosen area before making a decision.
Research should consist of analysing local competitors, customer demographics, food and drink habits and more. Generally, you want to do enough research to confidently create a business plan – which will be essential when the time comes to apply for finance.
When buying a pub as opposed to launching one from scratch, you can leverage existing information about the local area, customer base and more to make better decisions. We’d recommend paying close attention to the following:
- Local area: if you’re considering buying pub in a certain area, you should consider the wider location and how it will impact your business. Consider not only the immediate competition in a given space, but also the ways in which other factors will influence your customer’s behaviours. For example: \\n\\t
- Look at access considerations – what local transport links are available? How will customers get to your pub? Is there adequate parking for designated drivers?
- What other businesses are nearby? Ignore competitors for now and look at businesses which may be beneficial to your own, such as neighbouring restaurants, theatres and other attractions.
- Customer habits: the existing customers of a pub can help guide your decision. Ask the selling agent, seller or landlord if they have any statistics around sales and buying behaviours to see what drinks are popular, the split between food and drink sales and other factors.
- Demographic: the pub you’re looking at will have existing customers, but the area may have greater potential for expansion – so it’s worth looking at local demographics. A pub in an affluent area that is struggling, for example, may need to tweak its sales strategy and stock choices.
- Competitors: perhaps the biggest part of your research must be the direct and indirect competitors to your chosen pub. Direct competitors are other pubs and bars, whilst indirect competition can come in the form of restaurants and clubs.
How much does a pub cost to buy?
When you’ve reviewed the pubs for sale in your area and compiled the research above, you’ll have a better idea of the costs involved with each opportunity. Remember that the valuation of a pub often comes from the seller and selling agent trying to maximise the return on their investments – so be sure to conduct your own valuation and create a counter offer if you feel the value is inflated.
The cost of a pub will vary depending on its location, condition, whether it’s a leasehold or freehold etc. Determining how much a pub really costs is a case of considering each scenario:
- Tenancy: renting a pub comes with highly variable costs between £2000 and £50,000, based entirely on how successful and profitable the pub can be for the tenant. Unlike the other options, you won’t have to worry about repairs and maintenance etc – so running costs will be lower.
- Leaseholds: buying a leasehold is more expensive than tenancy, with prices starting from £30,000 but soaring above £100,000 for successful listings. You’ll also need to budget for the cost of repairs, maintenance, any upgrades or renovations you want to make etc.
- Freeholds: buying a pub freehold is the most expensive option but means you’ll be the true owner of the pub and property. Buying a freehold generally means spending hundreds of thousands of pounds up-front on the property itself and also budgeting for every purchase you need to make, including stock, hiring, renovations etc.
Negotiate with the seller
Entering a sales negotiation at this stage is a good idea, as you can begin to discuss the asking price and make offers. We’d always recommend acting with legal professionals on your side, even if you’re considering basic tenancy options.
The negotiation process can be long-winded, but provided you have assistance from a professional solicitor, you should be able to navigate the challenges associated with buying a pub. These include discussing how you’ll take over the stock and supply chain agreements within the pub, how you’ll manage existing employees, how you’ll deal with existing legal responsibilities or liabilities and more.
Ideally, a seller will create a list of warranties that help limit any chance of you falling into legal issues once the sale is completed. These are a list of statements of fact that help protect you once you become the owner. Not all new pub landlords will require this sort of thing, since tenancies and leaseholds are often made between the landlord and the brewery or pubco – but for freehold purchases, we’d recommend asking for them.
Once you have an agreement in place, you’ll need finance to complete the purchase.
Create a business plan
All pub landlords, even those who are just starting off with a tenancy agreement, should consider creating a business plan. Not only does a business plan help solidify your plans for owning a successful company – it also helps convince lenders that you are worth investment.
To create a good business plan, you’ll need to ensure you include all of the standard information expected by investors. To help you do just that, we’d advise your plan follows this structure:
- Executive summary: this is a summary of the contents of your business plan, which means you’ll need to write it last despite it coming first. Make sure the summary is snappy and captures the main points of the rest of the document – it’s there to entice investors and convince readers that you have a sound business plan.
- Company overview: this should outline your plans for the business, including name, structure, how you’ll staff and manage your pub and any other details around operations.
- Market analysis: this is where you’ll lay out some of the research we mentioned earlier, showing how the local area will impact the success of your pub.
- Competitor analysis: discuss competitors in more detail here, showing how you’ll address competition and what you can learn from each one.
- Marketing & sales plan: getting ahead of the competition usually means improving your marketing and sales to offer unbeatable service and advertisements that pull more guests into your pub. Build a picture of how you’ll successfully market your pub to convince investors of your plans and also to gauge a rough budget of how much you’ll spend.
- Financial projections: work with an accountant or other business professional to create this section. It’s the most important part of your business plan and will outline projected income and expenses, which ultimately leads to an idea of profitability. This is where you’ll win or lose most investors, so make sure it’s as good as it can be.
If you’re worried about your business plan, talk to Rangewell today about how to buy a pub. We’ll help you polish your plan until it’s something lenders love – all at no cost to you. Get in touch now to see how we can help.
Raising pub finance
Buying a pub is costly, even if you choose solely to rent under a tenancy agreement – you’ll still need a good amount of capital in order to get started. People often ask how to buy a pub with no money, but the real question should be how can someone become a pub landlord in the most cost-effective way?
Finance from banks and independent lenders provides realistic routes to ownership for many different types of potential pub owners. If you’re newer to the industry and don’t have the capital reserves to offer a deposit for a commercial mortgage, you won’t be able to buy a pub outright – but lenders may still be able to offer you finance to lease a pub, equip it with the latest equipment and purchase stock – all with rates that can be repaid as you generate revenue.
To raise finance, you’ll need to identify the right lenders and then apply. You’ll need to provide information about your own experience, your plans for the business and any financial information you can offer.
Applying with lenders
To apply for finance, you’ll need to approach a lender and submit an application. In doing so, you’ll be asked to answer questions and submit documentation to help demonstrate your eligibility for the loan. Every lender is different, but in general, you’ll need to show your financial history, your experience in the industry and a business plan.
If you’re looking to buy a pub outright in the traditional sense of the word, you’ll need a commercial mortgage to buy the freehold. That means you’ll need capital for a deposit and usually an established business that will act as the purchaser for the pub. Lenders will want to see evidence of this business's financial performance, so you’ll be expected to submit formal accounts and financial statements.
Receiving an offer
If you’re successful, you’ll receive an offer from your chosen lender. This offer will outline the interest rate and repayment terms you’re expected to adhere to, as well as any fees. Many lenders charge an arrangement fee when you first take out a loan, so make sure you review the offer letter carefully before you accept it.
You may be offered an unsecured or secured loan, depending on your background and how risky an investment you’re deemed as. Secured loans generally offer more favourable rates, but they are only available to those who have assets to leverage. Unsecured lending is more common and flexible, but comes with higher rates.
- Secured loans require that you offer personal assets as collateral to help minimise the lender’s perceived risk. This may be your home, or if you run another business it may be assets owned by the business.
- Unsecured loans do not require collateral but often ask for a personal guarantee from the director of a limited business. If you’re looking for pub landlord finance and you’re new to the industry, you won’t have any business history or credit so you any unsecured lending will be based on your personal experience, business plan and application.
If your loan is rejected, don’t worry – you can still buy a pub with the support of a different lender. Speak to Rangewell today and we can help you review your application, discuss what you can do differently and then reapply for a new loan with a more supportive lender.
Finance to run your pub
Once you've become an owner, you may still need finance to help run the business. Working capital loans, for example, help provide businesses with the cash they need to pay staff salaries, buy stock etc - which can then be repaid as you operate.
You may also need specific equipment, such as specialist brewing kit, which can be funded through asset finance.
Whatever your requirements, once you've become a landlord you can rely on Rangewell for our support. Speak to our team today and we can help with loans for all manner of business needs.