An independent viability report commissioned by the Save the Windmill Campaign has evidenced “The Windmill is a viable public house whether operated on a tied or free of tie basis”.
The report concludes by evidencing viability; “In terms of true viability, that is the ability for a business to break-even calculated by dividing the total overhead of a business by its Gross percentage, this would have been achieved at £2071 per week, considerably less than the levels of sales generated by the last tenant who was trading at a level 23% above this threshold.”
The report goes on to clarify; “this would be especially true of a well-funded and committed community group purchasing the freehold interest in the property”.
The author of the report is a Fellow of the British Institute of Inn Keeping and during a career spanning 35 years has been a manager, a tenant, a lessee and a freehold/free house owner of public houses. The author was for over 10 years, the Chief Operating Officer of an estate of 1,200 public houses made up of both tied and free of tie tenanted and leased public houses. The author has applied the British Beer and Pub Association (BBPA) and Association of Multiple Licensed Multiple Retailers (ALMR) benchmarks for a ‘character rural pub’ trading up to £5000 per week for 2015. So how has the owners’ viability study, and other public anecdotal evidence (that has significantly misled public opinion) got it so wrong?
The report concludes “the applicant (the current Owner) has shown no real understanding of the financial workings of a public house and presents no evidence to support their assertion the pub is unviable”.
Figures have been potentially manipulated; “Charges related to the setting up of the tenancy agreement should be excluded from a ‘normal’ profit and loss account, as they would be funded from any initial investment and not from revenues”. (see exceptional charges below)
The report states; “The business operated a trading profit of £840, even if the applicant was to argue the ‘exceptional charges’ were to be included in the account, the business operated at a loss of £6,572. A small loss, such as this, would not be unusual for any business in its first nine months, and had [the tenant] sufficient working capital this would have been manageable”. “A tenant needs to have at least £20,000 working capital”.
The report evidences; “[the tenant] was under capitalised when he took on The Windmill, which may have contributed to [the] eventual business failure”. “The Windmill is a seasonal business”. “Being under-capitalised to start with, it is likely [the tenant] would not have had sufficient working capital to allow the business to function during the quieter off-season”.
The report goes on to conclude; “Given January and February are notoriously quiet months in the pub industry it is hardly surprising [the tenant] did not continue trading after January 2015 as the business would have simply run out of money”.
The report goes into much further detail analysing Gross Profitability; “[the tenant] was achieving a satisfactory level of gross profit on the wet (drink) sales at the pub of 54.41% (£40,974) against a BBPA benchmark of 53.1%, the dry (food) operation was clearly operating at a hugely depressed level of gross profitability at 32% (£9,596)”.
A Reasonably Efficient Operator (REO) will operate their food business at a gross profit of 61.9% for a pub of this nature. The low level of gross profit derived from the food operation (32%) would have a demonstrably negative effect on overall profit, approximately £8965”.
“The amount of ‘lost profit’ might have meant an overall trading profit of £9,806 in the first nine months”. “A full 12 month projection may have produced an overall trading profit of £13,931”. “It is unclear why [the tenant] chose to operate his food operation at such a reduced level of profitability”. “The Windmill if operated by a REO would have achieved in the region of £14,525 on the sales generate by [the tenant]”.
In addition the report highlights further operating failures as a factor; “Certain line items of cost are at variance with what the BBPA recon to be average operating costs for a pub similar to The Windmill”. “Repairs, Maintenance & Renewals are very high for such premises as are the professional fees, equipment hire and the total of other costs”. “The overall effect on trading profit was to increase overheads by £1,946”.
The report in overall conclusion clearly evidences future viability; “The Windmill if operated under competent ownership and management could achieve a trading profit of £28,249”. Report author: Philip Sambell FBII Viability is a matter of perception to the owner/tenant/community. The financial benchmark for viability for an Owner or Tenant would be significantly higher than that required as a community Not for Profit asset. Not with standing that, The Windmill has been proven to be viable under any ownership, and therefore should re –open, as a pub.