Business Personal Finance

Sunday 18 March 2018

Passing your family pub on to the next generation when you finally call time

Stock photo
Stock photo

Stewart Dunne

The family-run pub has been a staple of Irish life for centuries. However, like many family-run businesses it faces challenges; from bigger competitors, changing social habits and the appetite of younger family members to take up the reins in what has traditionally been a labour-intensive enterprise that required close family supervision. If the pub or any other different business is to survive, it requires proper succession planning.

1 Have an early family discussion, even if it's difficult

Succession can often be a difficult family discussion to open up. Parents and children may have very different views on what should be done with the business and in deciding which of the family should/should not take over. Sometimes the person most suited to taking on the business may not want it, or there may be difficulties with sibling rivalry, where a number of close family members are involved in, or interested in, the business. The time commitment and other challenges to successfully run a family pub may be off-putting to children who have seen this while growing up.

2 Secure professional financial advice early

A very obvious factor, yet one that is often neglected, is to ensure that the retiring owners of the business get enough from the sale to fund their retirement. Also, close attention needs to be given to the ability of the children to fund buying the business and to ensure that there is enough working capital left to effectively run it.

This is where sound financial advice is critical at an early stage and when a realistic timeline for the transfer of the business should be set.

The rise in property prices has sometimes presented new opportunities for pub owners outside of their normal business. However, the process of deciding whether to sell or redevelop a pub site is probably no different than for any other business.

Ask yourself: Why are you selling? Is it the right time to sell? How should you value the business? Will there be a large tax bill to pay? What will you do with the proceeds?

There are many instances where pub owners have taken on the redevelopment of their own sites, but anyone considering doing this must get proper professional advice as the consequences of getting this wrong will be significant.

3 New technology may make an old job more attractive

Advancements in the technology used to manage the business (eg, CCTV, integrated stock systems) has given owners more control and allowed them to more effectively manage multi-pub groups.

Owners looking to control operations of their pub, without working there full-time, will need to invest in training for themselves and their staff to ensure they can use more advanced management-information systems. However, the most advanced technology will never replace a highly skilled and trusted bar manager.

Another factor for publicans to consider is the very different challenges that rural and urban pubs face. In rural areas you may find that the volume of business means that it's just not possible to live solely on the profits from the pub and the owner will therefore need to have other employment or business interests. In the cities, the value of the property means that owners can be sometimes highly leveraged and this can put a significant strain on the business.

If the owners don't want the business risk of running the pub, then they may consider leasing it to an experienced operator. This will guarantee their income for the period of the lease and if the operator is successful this should also enhance the value of the pub.

4 Prepare the next generation to take over

A good strategy is for the children to go and work outside of the business for a few years to gain experience that they can then bring back and use when they eventually take over. This may involve working in a larger but similar type organisation, travelling abroad and bringing back new ideas, or getting a qualification or training in an area that will benefit the new owner.

5 Ensure the value the current owner brings isn't lost

Prospective owners must not underestimate the role, influence and involvement of the current owner. This can be evident in areas like customer loyalty, staff loyalty/morale, relationship with suppliers, financial acumen, etc.

The new owner must decide from the outset if/how the current owner will still be involved. They must also be clear on which employees (family and non-family) will remain in the business. They must be mindful of the impact on staff/customers of the business to a change in ownership and get help from the current owner in managing this transition.

Finally - and this is critically important - they must have a firm grasp of the numbers so that they know the amount of capital that's required to run the business and to be confident that there will be profits and willing debt providers to fund this.

Stewart Dunne is a partner in BDO Dublin whose clients include family-owned businesses across many sectors

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