You need premises before you can even apply for a Liquor License. The public area must not be less than 30m2. The ideal is that your premises are +500m or more from a church, school. However this is not always possible. Do not start spending money on renovating the existing building or start building a new building or sign a lease contract on the building before you have cleared the following:
- Visit your local Municipality’s Town Planning or Land Use department and confirm with them that the premises or stand that you want to use are suitable for a Pub. (You need the ERF number of your premises)
- Request a Zoning certificate from the Municipality on the stand that you intend to use. Your Liquor License Consultant must be convinced that the zoning is correct. In Gauteng you need a Local Authority Approval (A letter confirming you may apply) for a Pub in addition to the zoning certificate.
- Negotiate a Lease Contract. If you are not the owner of the property then you require a lease contract between you and the landlord. Be careful when signing the lease contract. Read the conditions very careful, especially with regards to the following”
- 1. Escalation clause. This means the amount the rent will increase after every year. An annual escalation of up to 8% or less is acceptable in today’s economy. (Do not accept a 12% escalation clause for this is too high in today’s terms.)
- 2. Right to renew. The renewal clause gives you the right to renew the lease contract after the expiry of the lease. There should be a % increase or a rand value increase after every year in rent until the end of the contract as well as for the renewal period. The applicant is welcome to contact the writer for more information. (Do not accept a clause stating “The lessee has the right to renew the lease contract, without a clear stipulation of the cost of the lease after renewal.)
Note: The monthly payments stipulated on the lease contract can be inflated by the lessor’s on-costs such as administration cost, security cost, cleaning cost, rates and taxes etc. Establish first what extra cost will be charged before you make a decision.
A guideline on the influence of rent on the profitability of a Pub is that if the rent is in the region 10% or more of a Pub’s turnover, you are paying too much rent which will inflate your overheads out of proportion.
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Liquor License Application.
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- Contact a reputable Liquor License Consultant to give you a quote clearly confirming all cost. Investigate the Liquor License consultant and ask for references. Make sure you know what is included and what is excluded in the quotation. Apply as soon as possible because a Liquor License Application can take a long time. (4-6 months or longer) You can apply on existing premises or on a stand on which there is no building yet. Your Liquor License Consultant will give you a list of requirements for a Liquor License Application. Don’t attempt to do a DIY job on your Liquor License application unless you are fully familiar with all aspects of the Liquor Act.
Section 23(3) of the Gauteng Liquor act reads: “Where an application for a license has been refused by the Board, no new application may be made in respect of the same premises within a period of one (one) year from date of refusal,........” If it takes six months before you receive a refusal from the board it means that you have wasted 18 months before you can apply again and then you might wait another 6 months before your application can be approved. That could mean 24 months which you might pay rent on an empty shop.
Start planning your shop.
Decide on your target market. (High income, Medium income or Low income group). Your products that you will sell and your shop furniture depends on this decision. (As well as the outlay and image of your shop).
- Pay attention to the condition and suitability of the shop’s floor. If it needs replacement, estimate the cost. The shop floor is part of the image you wish to portray. It must be practical for high traffic, easy to clean and non-slip.
- Painting and renovation the shop. Estimate the cost to paint and renovate. Choose your colours wisely. Steer clear of a dull neutral colour.
- Determine the security requirements and cost such as burglar bars, safety doors, alarm system, armed response and new locks for the shop (Don’t use the old locks. You don’t know how many keys are floating around.) Install security mirrors, CCTV cameras, dummy cameras, an alarm system with armed response and safes
- Design and estimate the cost of the signwriting and promotional material. Proper signage and graphics are crucial to establish brand recognition and must portray the message loud and clear that your shop is a Pub. Decide on a Name and Logo and colours of the business. (Remember your business must “jump out in the street”. It simply means that your business must not melt into the surrounding shops but stand out very clearly) You must be able to read the signwriting and advertisements while driving past you shop at 60 km/hour. Rather write less than clutter the signboard with too much information. Items may include Neon Signs, Banners, Store Front Signs, Displays and message sign boards.
- The lighting of the shop is important. It must suit the required ambiance of the type of business you intend to operate.
- Bar Counter and Shelving. The Bar Counter and Shelving should be strong to support the weight of the liquor on display. Instead of storing your products in a store room, you can create attractive displays with it. Your shelves must be fully stocked. It creates the impression of a successful store. Avoid partially stocked shelves. Wall shelving must cover the walls, contribute to the image of the shop and must suit the shop's decor. A good idea is to use the open space above the wall shelving for promotion or alternatively it can be boxed with cladding or similar.
- Impulse buying Countertop Display. Well selected display of smaller items usually bought on impulse can be displayed on the back counter or shelving.
- Temperature control. Decide if an air conditioner is required to control the temperature in your shop.
- Point of Sale System (POS) and software. The liquor trader must employ a powerful POS system to control his cash flow, stock, shrinkage, and sales statistics. Contact a reputable POS supplier and decide on a system that will at least scan each item, adjust the stock level automatically, have a complete stock control system in place that will show any theft or shrinkage after each stock take, have a minimum and maximum stock level control with a re-order level flag. It must show the cash at hand and control the empty bottles.
- Establish the suitability, quantity, safety and convenience level of the parking for your customers.
- Decide on your pricing strategy. Visit opposition shops and determine their prices. Find out from suppliers the cost price of your products. Decide on a price mark-up percentage. It is not a good strategy to be the cheapest in town and never start a price war!
- Decide on your product strategy. The type of products you will sell depends on your target market’s income and preferences. Initially and before start up it is difficult to know for sure what products are fast movers, however you can talk to other dealers who are outside your influence area. Establish the fast moving stock and list them.
Unfortunately you can not only stock fast moving stock. Some stock should be kept as a service product to customers who are seeking alternative products.
- Initially stock high priced items such as exclusive wines and whisky with care. Keep a low stock of it until you have established the demand for it.
- Compile a Suppliers List with alternative suppliers. Your purchases can influence your profit margins dramatically. Shop around for better deals. Do not buy from the local Liquor Store. Your relationship with your suppliers is critical. Try to line up alternative suppliers where possible. This should include refrigeration mechanics, electricians etc. Some suppliers offer a percentage discount on bulk/case purchases. Buy all your fast moving stock from them. The slow moving stock can be purchased elsewhere and in smaller quantities.
- Decide on an Employment Strategy. Many successful businesses have failed because of employees. Take note of the following:
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- 1. Do not employ anybody to do the work that you can do.
- 2. Work out your budget and cash flow before you employ anybody. It is not fair to an employee if you inform them soon after you employed them that you can not afford them.
- 3. Do not trust anybody. Ensure strict financial a stock control. Do your own buying and stock control. Ensure that your employees have no access to the Point Of Sale systems manager’s files. You as the owner must enter all stock delivered into the computer program and NO staff member may have any access to that program.
- 4. Follow up the applicant’s previous employers and get a reference.
- 5. Follow up the applicant’s qualifications.
- 6. Draw up disciplinary procedures for the employees. If an employee is found guilty of theft, do not only dismiss the person. Lay a criminal charge against that person and prosecute. Otherwise the person moves to a new liquor pub and repeat the same.
- Insurance cost. Some lease contracts requires the lessee to insure for shop- front windows and other breakages. Also insure the Stock and Equipment.
- Register with the Receiver of Revenue such as Income Tax, Employees tax (PAYE), Value-added tax (VAT) if applicable, Unemployment Insurance Fund (U.I.F.)
- Apply for a Business License (if applicable) at your local Municipality.
- Appoint a registered accountant. Seek advice from your accountant on VAT registration and tax issues. You can save substantial amounts of money by using professionals.
- Decide on your business hours and stick to it. Advertise it at the entrance of the shop.
- Decide on the legal entity of the business such as a Sole Proprietor, Company (Register the Company) or partnership (Draw up a partnership agreement).
- Banking. Negotiate with different banks the Cash deposit fee charged by that bank. (Cash deposits can attract huge bank charges) Then open an account.
- Order your stock. Ensure that you do not run out of stock, but do not over stock.
- Credit card machine. Negotiate with your bank for the installation of a credit card machine.
- Before opening buy an advertorial in the local newspaper with opening specials. Limit the specials both by quantity and time period.
Work out a Budget. Without a Budget you can fail before you opened your doors. Remember to budget for the actual and hidden cost which are listed but not limited to the following:
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- 1. Cost of the Liquor License Application.
- 2. Cost of your first payment to the Liquor Board on approval of the Liquor License.
- 3. Rent deposit.
- 4. First months rent in advance.
- 5. Cost of stock.
- 6. Electricity deposit.
- 7. Painting and renovating the shop.
- 8. Tiling the shop floor. (if required)
- 9. Lighting and wiring. (if required)
- 10. Burglar bars and safety gates.
- 11. Alarm system and camera system.
- 12. Signwriting.
- 13. Stationary, printing etc
- 14. Cost of equipment, furniture and fittings plus installation.
- 15. Cost of electrical installation of equipment
- 16. Cost of Point of Sale system and software.
- 17. Plumbing. (if required)
- 19. Computers and software.
- 20. Employment contracts.
- 21. Cleaning material and equipment.
- 22. Transport. (initially you can survive with a trailer)
- 23. Cost of rent while waiting for the Liquor License.
- 24. Installation of the alarm system
- 25. Glasses, tot measures and bar equipment
- 26. Telkom line.
- 27. If your business is in Gauteng order a sign with letter 50cm high for the front door which displays the following: Name of Business.
Type of Liquor License (i.e. Restaurant)
Trading times of the Business.
Liquor License Number.
- 28. Fire extinguishers.
- 29. Pool tables / dart boards.
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- 1. Minors. Section 46 of the Gauteng Liquor act 2 of 2003. A licensee shall not sell or supply liquor on the premises to persons under the age of 18 years...
- 2. Intoxicated persons. Section 47 of the Gauteng Liquor act 2 of 2003. A licensee shall refuse to admit to the licensed premises or any part thereof, or sell or supply to an intoxicated person and shall have such person removed from the premises or any part thereof. (An intoxicated person is when his/her capabilities are so impaired by liquor that he/she is likely to cause injury to himself/herself or be a danger or nuisance or disturbance to others.
- 3. No liquor may be consumed outside a Pub.
- 4. Business Hours: Gauteng - Monday – Sunday 08h00 to 02h00.
- 5. Weddings and functions. A Pub license does not allow you to set up a Bar at a function. Your license only covers your registered premises and within the constraints of your floor plan approved by the Liquor Board.
- 6. If the Liquor License is in the name of a Company or Close Corporation.
If the license in in the name of a juristic person as mentioned above, a natural person must be appointed to manage the Pub. Contact your Liquor License consultant.
- 7. If the License holder is not the person who is running the Pub on a day to day basis. Then a natural person who is running the business on a day to day basis must be appointed as Manager
- 8. Cash flow is very critical. Don’t buy anything except stock. Avoid “Nice to have” equipment and buy them when your shop is profitable. Many a profitable shop has closed down because the owner ran out of cash. Once your shop is profitable, save at least six months overheads and invest it in a sixty day account.
Makro factors influencing the sales figures of a Pub.
As with all businesses there are distinct factors, which are out of your control, that influence the turnover of a Pub. If I may grossly generalize the following cycles may be observed.
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- 1. Weather. – The higher the temperature the higher the sale of beer and beverages. There is a distinct drop is beer sales during rainy and cold days.
- 2. Sport. – Sport such as an important rugby / soccer match can influence your sales. Make use of them.
- 3. Weekdays. – Generally Mondays are much slower than Friday or Saturday.
- 4. Months. – Generally November and December are the busiest with February the slowest. Generally in spring sales rise. Easter season will influence your sales dramatically and depending on which days of the week the public holidays are, you will have dramatically lower sales.
- 5. Festive season. – This is the busiest part of the year. You need to order larger volumes of stock because most suppliers close over the festive season. Initially it will have a detrimental effect on you cash flow if you do not plan for that. You need to plan the fast moving stock such as beer. Again you can order a large quantity of beer for the festive season, and if it rains for three weeks, then in January you can be stuck with a large quantity of beer and a with a cash flow problem. The opposite is also true. If you order too little and run out of stock, you lose customers and sales!
- 6. Time of day. Mornings are slower and it picks up at 16h00.
- 7. Time of the month. From the 10th until the 20th of the month is usually slower than the rest of the month. But, if your target market is weekly paid customers, the scenario will change.
- 8. Labour unrest can affect your business in that strikes reduce the expendable cash of your customers. It takes a striker months or years to recover financially after a strike. If the demonstrations are held in the vicinity of your shop, your sales come to a virtual standstill. This can be expected from June to September.
Frik Liebenberg of Frik Liebenberg Business advisory Services cc 99/05522/23 has been a Business Broker since 1997 and a Liquor License Consultant since 2002. Feel free to contact us for further information.
Frik Liebenberg Business Advisory Services cc 99/05522/23
082 556 8368
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