What is My Pub, Restaurant or Hotel Worth?
Many owners of hospitality businesses will at some time or another ask themselves
“What is my pub worth?”, “How much is my hotel worth?” or “How much is my restaurant worth?” Usually they will ask this question because they are thinking of selling their business or perhaps raising finance on it. But sometimes, especially if they have been running the business for a while, they will want to know what value they have added to the business since they started, perhaps to help them plan the next stage of business growth or for other life planning purposes.
Putting a financial value on a pub, hotel or restaurant usually depends on three main factors: the size and type of the premises, the current performance of the business and geographic location. This article outlines these three factors in more detail for pubs, hotels and restaurants generally, and gives more specific valuation factors for each type of business.
The Premises
If you own your business’s premises, the buildings and contents will have a value regardless of how the well the business is performing day to day.
The most obvious source of value is based on the actual buildings themselves and depends on size, space, general state of repair and the presence of specific facilities such as kitchens, car parks, children’s play areas, and so on. There may also be a premium for buildings which are listed, have architectural interest or which have spectacular views, for instance.
But the value of your premises also lies in their potential for development. A buyer will generally value the opportunity to grow the business beyond its current scope.
For instance, if a pub has owner accommodation, a buyer may consider converting these into letting rooms and developing a small B&B business, or hiring them out as meeting rooms.
If there is outside space, getting planning permission for an extension or other buildings will also greatly increase the value of your premises for a future buyer.
Legal arrangements associated with the premises can also affect the overall value. A buyer may place a higher value on a pub which is ‘free of tie’, allowing them greater freedom to locate the best deals for barrelage and spirits.
Other issues will be seen as positive by some buyers and negative by others, depending on what that buyer is looking for. A buyer who wants a development project will not want to buy a pub which is a listed building or in a conservation area, as scope for development will be low or nil. But another buyer may be actively seeking premises with character and will place a positive value on it being listed.
Business Performance
When a buyer is looking for a pub, hotel or restaurant to buy, they are not only looking for suitable premises (unless they are aiming to start from scratch), they are also looking for a business which will generate income. So a large part of your business’s value lies in its current performance and profitability. This proves the income potential of the business and allows buyers to raise loans and make plans based on expected turnover.
Overall profit is, of course, the major indicator of value. But other aspects can positively affect value. For instance, a high volume of customers is of value, even if the current owner is not especially profitable, as it provides the new buyer with a good customer base to work with. Other more intangible aspects can also sometimes help, such as having a good reputation, being well known in the area or having some level of exclusivity (e.g. the only pub in the village or the only hotel next to a railway station).
Location
The value of your business overall will also be affected by its geographic location.
Some areas of the country simply demand higher prices than others, in a way which reflects the general property market.
London businesses will generally attract the highest prices, along with home county locations such as Hertfordshire, Cambridgeshire, Buckinghamshire, Essex and Kent, but prices in the South & South West can also be high.
In particular the South coast towns of Southampton, Portsmouth, Bournemouth and Brighton which benefit from year round tourist trade are all popular locations for buying a pub, restaurant or hotel and particularly those with attractive sea views can command excellent purchase prices.
Locations such as Ipswich, Bury St Edmunds, Lowestoft, Stowmarket, Diss in the county of Suffolk and Norwich, Great Yarmouth, Acle, Cromer, Sheringham, Dereham in the county of Norfolk are particularly popular amongst buyers looking for a quieter lifestyle, as hospitality businesses here benefit both from steady tourist traffic to the Norfolk broads and East Anglia coast, as well as year round custom from the population of nearby towns and villages.
Some of the more rural counties such as, Bedfordshire, Lincolnshire, Gloucestershire, Herefordshire, Shropshire, Devon, Cornwall, Somerset and Derbyshire can offer a wide range of rural, village and city locations but at lower prices than London and the Home Counties.
Following a similar pattern for house prices, businesses in more northerly counties such as West Midlands, Nottinghamshire, Staffordshire, Warwickshire, Leicestershire and Northamptonshire will generally attract lower values unless the location is special in some other way.
However, simply knowing what county a business is in can be less important than more specific information about the locality and what else is nearby. For example a prominent high street location will be worth more than one which has less footfall, all else being equal. Businesses in popular seaside towns will attract higher values than those away from the coast. But within that seaside town businesses with seafront locations will be more valuable than those a street or two back from the seafront.
Location will interact with business performance to some extent. For instance, the prices for food, drink and room hire will generally be less as you move away from London – unless the premises is in a prime location of some kind such as close to a major sports or conference venue.
Rural locations are the typical stereotype of quaint villages with loyal locals and passing trade from tourists. High street locations are desirable provided the rent is competitive and the area has good transport links. Destination Pubs and Hotels need to serve good food and have unique selling points such as local bands, events etc in order to compensate for the lack of passing trade.
What is My Pub Worth?
Apart from the value of the premises and overall location, the value of a pub lies chiefly in its turnover – which is directly related to the number of customers it can attract. The numbers of customers a pub can attract are affected by permanent and transient factors.
Permanent factors are those which are virtually guaranteed to stay in place regardless of owner. This includes obvious physical features of the pub, such as overall size of the premises, presence of gardens, car parks, meeting rooms and so on. But it also includes being sited in a business location (lunchtime and post-work traffic), close to a transport hub (pre- and post-journey traffic), or close to a major sporting arena such as a football stadium. Other semi-permanent factors include being the established venue for various groups such as a darts team, pool league, or quiz league who will probably want to continue using the pub after a change of ownership.
A transient factor is something which temporary affects business turnover, such as running special events or promotions, or bringing in a new selection of products. If the events stop, the promotion ends or the products change (because a new owner has come in, for example) the customers are likely to fall back to previous levels. Turnover generated through these means shows a prospective new owner the potential of the pub, even if it does not form part of the purchase price.
How Much is My Hotel Worth?
While some of the factors affecting a pub also apply to hotels (especially if it includes a bar open to the public), the value of a hotel lies elsewhere.
The worth of a hotel, apart from the inherent value of the building, lies in its ability to generate revenue from room hire. This depends partly on the number of guests, but also depends a great deal on the quality of the rooms, since this affects how much can be charged per room. The difference between a cheap and cheerful B&B and a boutique hotel, lies almost entirely on the internal decoration and facilities. External location will matter to some degree (you wouldn’t expect to find a boutique hotel on a run down high street) but these factors will probably already be reflected in the bricks and mortar valuation.
So for hotel valuation, the presentation and quality of the décor in rooms and communal areas will form part of the valuation, along with features such as en-suite bathrooms.
The views from a hotel can also be considered as being of material value (for holiday makers, less so for business travellers). Sea views, riverside, lakeside or landscape views will all be sought out by guests and are therefore part of the hotel’s value.
If the hotel is regularly used by particular groups as a venue for annual dinners or conferences, or perhaps as a popular venue for wedding receptions, this can also be regarded as value that the new owner will automatically benefit from.
The way the hotel is marketed may also have identifiable value. If you are marketing using pay-as-you-go methods such as running ads or producing leaflets, this isn’t something a new owner will benefit from going forward. But if a hotel has an established website which is generating bookings, then the website should also be considered as part of the tangible value of the hotel.
In short, consider all the aspects of your hotel which attract guests and visitors and assess which of those aspects will still be present when a new owner takes over.
How Much is My Restaurant Worth?
A restaurant has much more in common with a pub than with a hotel – although many restaurants operate alongside or part of a pub or hotel.
The inherent worth of a restaurant lies in the buildings and facilities (i.e. kitchens) while the value of the business is measured by turnover and number of customers.
As for pubs and hotels, you need to work out what features of your business will still be in place when a new owner takes over, and what features will disappear when you leave.
The potential value to a buyer will depend on whether you are selling a building plus kitchens for a new owner to begin a whole new restaurant with a new menu, or whether you are selling a functioning business for a new owner to pick up and run with. The second option has a much higher potential value, since the owner will benefit from the existing customer base and reputation you have established.
So, assuming your business is doing well and you want to sell it as a functioning business, you need to think about how to maximise the extent to which the business can run without you. If you are owner, chef, barman and bookkeeper, the business is less valuable than if you have staff who can stay in place when a new owner comes in. Existing chefs allow a popular menu to be continued, while bar persons and waiters provide a sense of continuity for existing customers.
The quality of the internal décor, including tables, chairs, carpets and toilet facilities, all affect customer numbers and possibly even the prices you can charge, and so should all be factored into the overall valuation.
How Can I Get a Valuation of My Business?
Although the above factors will give you a general idea about what to consider when working out what your business is worth, a professional valuation is necessary if you want to sell all or part of your business, if you want to raise finance on it, or if its value needs to be known for any legal purpose.
UK Pub Sales provides a professional, no-obligation, free valuation service aimed at establishing a realistic valuation of your business. For your Free Valuation, just contact our valuation department on:-
East Anglia Office 01284 716696 or info@ukpubsales.com
Midlands Office 01212702280 or info@ukpubsales.com
South Office 02380 011 770 or info@ukpubsales.com
We will then arrange a meeting with one of our experienced Business Valuers. Alternatively a preliminary valuation can be carried out using our Fact Find Enquiry Pack.
Because we are involved in actively selling businesses, we are in regular contact with active buyers. This means we have a strong understanding of the current market, what different buyers are looking for and what they place a value on. This enables us to give an extremely accurate valuation which reflects the current market.
To find out What Your Pub, Hotel or Restaurant is Worth, please contact us.
