Leasehold Purchasers Online Help
What is a Leasehold Valuation
Valuation is based on a multiple of reconstituted profit or adjusted net profit. This is the figure arrived at by adding back to the net profit shown on the profit and loss account, overheads which are not operationally specific. Items normally excluded, are those personal to the seller such as mortgage interest, depreciation, private motoring, pension payments, professional fees etc. If there have been major repairs in one year then these should be highlighted.
The multiple of this adjusted net profit would be determined by the tenure of the property - in this case leasehold - and current market forces currently affecting demand in the market for the size and style of business being valued.
Understand that If, for example, the multiple used is three, this would produce a value based upon three years ownership - which means you will see the purchase price paid, returned to you over a three-year period.
Six years purchase means a multiple of the adjusted net profit of six and so forth. This would be based on a straight-line profit projection of the current adjusted net profit figure.
Hopefully as an Entrepreneur you would be able to improve on the straight-line profit projection as you increase the business.
Paradoxically you should have an exit strategy in your mind to help you plan a time line for your investment and likely return.
It would also be helpful if the accounts show the split in turnover between wet sales, food sales and accommodation, if appropriate.
This would then allow you to see the operating profit from which you may be able to obtain finance if necessary and plan to manage the business. You may not necessarily want to run the business yourself.
If the seller is in the middle of a financial year you will need copies of his VAT returns for the current year.
Ask for a comparative breakdown of monthly turnover figures as this helps understand if the business is seasonally affected.
You should know the end of a lease (the short period of 24 months or less) will be more difficult to sell and should be valued as such.
There are of course other factors:
The principle factor being considered in all of this will be the trading performance and profitability of the business, the potential of the business, theme, quality of presentation and importantly, the pub's location.