Due Diligence

Nobody wants unpleasant surprises and if you are to protect against this it takes work. It’s about asking the right questions, historically that’s why its done by experts. Many people buying a pub will do the due diligence themselves, this is usually because the money involved doesn’t warrant the expense of professional advisers as the trade is seen by many as a relatively simple one.

Should you take on this role yourself keep one thing uppermost in your mind- Is there a balance between facts and opinions? (is the pub being “over sold”?) and remember its what you don’t know that can hurt you later on.

There is no such thing as an definitive list of questions when performing due diligence but many people overlook fundamental questions in their rush to get started.

Some Sample Questions

- Is there a clear description of the product or service you can offer from this site are you changing the offering from what is currently offered? (see our sales & marketing page)
- Does the site meet the needs of the target customers is there any existing goodwill/trade and what do you think its value is to you?
- Is there an expanding (or at least stable) market for the service you intend to supply?
- Who are your competitors and how do they compare on quality/price/service (consider making personal visits)?
- Is the business scalable should you want and or need to expand?
- Are licensing laws and regulatory requirements covering items such as gas / fire / elec safety currently being met?
- Check the web for any recent bad publicity, news stories or adverse comments?
- Any historic difficulties with suppliers such as gas, electric or water services for this site, get quotes on likely costs or deposits they may require?
- Any large increases in rent or other costs on the horizon?
- Is there any other large impending cost you will have to meet e.g. cellar cooling or refurbishments for toilets etc?
- Is there over reliance on a particular member of staff, drink types or customer profile (sports bar with Sky or maybe family Sunday lunch trade)?
- Any there any seasonal spikes or trends in turnover, this could impact heavily on cash flow so carefully work out the cash at hand you’ll need to get through any quiet periods?
- Are staffing levels adequate, will you need more than currently used to meet your plans or less?
-  If you are reassigning are any key employees staying on, understand what it costs you to sack or make staff redundant if plans change or things don’t work out?
- How easy is it to recruit new staff or find suitable people with the right skills in your area, do you have any budget set aside for training?
- Do the employment contracts for staff comply with existing legislation?
- Do proper record exist for all aspects of human resources such holidays or leave that has been granted?
- Is the company up to date with all employee related taxes?

Financial Questions

- Is there unambiguous and complete explanation of all revenue streams and are you getting full or partial disclosure?
- How good are the cash flows?
- How accurate is the valuation of any assets or goodwill?
- Are there any hidden liabilities (cost to exit pub lease should you change your mind or fall ill / be unable to work)?
- Are there any irregularities or gaps in the financial statements (recent trading history / stocktaking reports)?
- Are the figures independently audited or verified in some other way?
- How sensible are your plans when set against the above, can you make a profit (know your break-even and the hours you have to put in) are you relying heavily upon any supplied financial figures to underwrite your decision to take on the pub?
- Have you any overdraft and or other credit facilities to fall back on should things not go as planned or will you be funding all such facilities yourself?
- What does it cost to properly insure any business interruption, many pubs are chronically under insured in the event of a flood, fire or similar closure event (obtain detailed quotes from specialist insurance).

Other Questions

- What do background checks on the Pub company reveal, are they solvent, profitable and steady?
- Have you sight of all documents relating to relevant insurances, building gas / elec safety certification are there any new works or equipment guarantees?

Legal Questions
- Is there a history of past trouble at the premises (do online searches) are the licensing conditions imposed on this site fully understood?

Chris Wright

Risk managment, specialist debt & credit advisor

Website: twinpier.co.uk Email This email address is being protected from spambots. You need JavaScript enabled to view it.
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