Establishing a Pub
Gauteng
www.liquorlicensing.co.za
Introduction.
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?
1. 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.
2.
Liquor License Application.
- 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.
3. 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 load 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 storeroom, 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 starting 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:
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 employees 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 require 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.
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)
18. Trading
License.
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.
Some
notes.
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 rofitable
shop has closed 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.
9. 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.
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
Frik Liebenberg Business Advisory Services cc
99/05522/23
082 556 8368
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