Establishing a Pub Gauteng

The intention of this exercise is to assist the first time entrepreneur to note some factors which might influence his/her decisions when establishing a new Pub. The intention is NOT to give legal or financial advice. All information is available for the entrepreneur to use at his / her own discretion and risk and Frik Liebenberg Business advisory services cc does not except any responsibility whatsoever for losses which the entrepreneur may occur when using this information. This information is by no means comprehensive and must be adjusted to suit specific situations and to suit provinces other than Gauteng.

Opening a new Pub is an exciting venture but not without risk. Before you jump in and start spending money on your new venture, stop and read these few pointers that may save you money and loads of frustration. The question is often asked “Where do I start?

Premises

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.

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).

Decide on an Employment Strategy. Many successful businesses have failed because of employees. Take note of the following:

• 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.

6. Budget

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:

• 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

Some notes

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.

• 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.