Leasehold Sellers Online Help

How can I achieve the best value for my business?

Plan ahead. Ensure you have the accounts available for your last full trading year and preferably the previous two years. Have copies of your VAT returns since the last year- end accounts and any management figures you have to provide a complete up-to-date picture of how the business is performing. Plan to build this up as far as you can the year before you want to get out, not just the current trading period.

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.

What is a Leasehold Valuation? Back to Top

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 you 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 a buyer will see the purchase price paid, returned to him over a three-year period.

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, as there is no guarantee of a new lease. The Landlord and Tenant Act does give statutory rights of renewal, if applicable to the lease, however there are circumstances in which this would not occur, so it is not necessarily a sensible thing to rely on.

Every seller has his or her own reasons for selling. If you require a speedy sale you are advised to be realistic with your valuation. If you are not in a hurry you have the luxury of beginning with a higher price and seeing how the market responds. No interest in your property may mean that the price is too high.

There are of course other factors:

• The Type of Lease
• The Type of Agreement
• Terms & Conditions applicable to the Leasehold including:
• Tie - free of tie, part tie or full tie and other supply or trading agreements
• Repairing obligation - internal repairing or full repairing
• Rent review pattern and how the rent review is calculated
• Service Charge provisions
• Assignment clauses
• Insurance premium charges
• Decoration - internal, external or full
• Dilapidations - any repair issues outstanding
• Who the Landlord is

If you use a Broker/Valuer or Business Transfer Agent. Be prepared for fees that may vary from 1 - 4% of the sales price. Some agents charge up to 10% of the annual rent plus a percentage of any premiums achieved up to 10% - there are no hard and fast rules and lower percentages will apply to higher values. * Also you may have to up front costs i.e. advertising and marketing expenditure.

* Please note that The Pubshop Ltd Online Advertising Service has a fixed fee of £500. Other valuation and sales services can be accessed at any time with fees specifically agreed for the assistance required

Preparing for your Purchaser Back to Top

• If you are in the middle of a financial year, copies of your VAT returns will be required for the current year.
• It would be useful to ask your Accountant to give early consideration to the apportionment of the sale price between the freehold/leasehold interest, the goodwill and the inventory.
• It would also be helpful if your accounts show the split in turnover between wet sales, food sales and accommodation, if appropriate. This would then allow a purchaser to see the operating profit from which they may be able to obtain finance if necessary and plan to manage the business. All purchasers do not necessarily want to run the business themselves, they may want to know that they can afford to employ managers.
• Prospective purchasers and lenders would appreciate a comparative breakdown of monthly turnover figures as this helps them understand if your business is seasonally affected.