Guide
Fair maintainable trade, and why it is not last year's profit
Updated
Almost every dispute in a pub purchase comes back to one number that nobody agrees on and everybody quotes. Understanding how it is built explains most of what happens between offer and completion.
What fair maintainable trade means
It is the level of trade a reasonably efficient operator would sustainably achieve at the property, not what the current owner happened to make last year. That distinction cuts both ways: an underperforming pub can be valued above its accounts, and a pub carrying a one-off good year will be valued below them.
Because it is a normalised figure, it is a judgement rather than an extraction from the books, and it is the valuer's judgement rather than the vendor's.
What gets added back
The operator's own drawings and any personal costs run through the business, since the valuation assumes an operator paid at a market rate rather than whatever the current one takes.
Genuine one-offs on the cost side, and any expenditure that reflects the current owner's choices rather than the business's needs.
What gets stripped out
Trade that will not repeat: a festival, a diversion bringing passing traffic, a competitor closed for refurbishment. A valuer is buying a recurring stream, not a good year.
Deferred maintenance also comes out, in the sense that capital expenditure the business needs but has not had is assumed and reduces the sustainable figure.
The tie changes the arithmetic
A tied pub buys its drink from a specified supplier, which constrains purchasing margin and therefore the profit a valuer will accept as maintainable. A free of tie house is not comparable to a tied one on a single multiple.
Establish which you are buying and whether the tie transfers with the property. It is a question about the value of the asset, not a detail of the supply arrangements.