Starting blocks

Removing a table for four from your restaurant to make way for a 4ft-high wooden sculpture may not seem like a good decision for a business with financial difficulties, but Mark Dodds supports the local arts.

As lessee at the Sun & Doves in Camberwell, south-east London, Dodds offers local artists the chance to display their work for a fee. The walls of the pub are adorned with monthly changing works. "Other places don't take art seriously," says Dodds. "It gets people in the pub and we get listed in gallery sections of magazines."

It is one of the more positive aspects of a pub which has been dogged by problems since opening in December 1995, problems which Dodds attributes to being undercapitalised from the start. "All the problems have their root in this," he says. "It's all been crisis management."

Having put together a business plan, Dodds was unable to find financial backing for his project to turn the quiet local pub into a thriving restaurant and bar. "Banks were interested in the business plan but wouldn't lend any money because there was no capital," explains Dodds. "And they were sceptical about what I said the place could be. They weren't interested in restaurants and had seen pub turnover fall off dramatically."

In the end, £45,000 was put up by three private investors - £30,000 from Dodds' parents, who remortgaged their house; £10,000 from Rob Williams, who became the chef; and, as the result of local questionnaires about the proposed bar, an interested woman invested £5,000. An additional £15,000 was loaned from Courage and the bank was then persuaded to part with £15,000.

In September 1995 Dodds signed a 20-year lease costing £14,000 with freeholder Inntrepreneur (the freehold was subsequently bought by Scottish & Newcastle in March 1998). He paid £15,000 in rent for the first year, a figure which has now increased to £32,000 per annum and is due for a five-year review in 2000.

Dodds completed the refurbishment in nine weeks, transforming the premises. A wall dividing the bar was knocked down and a DJ booth and banquette seating were ripped out. Large panes of glass replaced gloomy leaded windows to give the building a light, airy look.

All the furniture came from junk shops to save on costs and the kitchen and behind-the-scenes area had a minimum of refitting. The total cost of refurbishment came to about £75,000 including equipment such as fridges and the stock needed for opening. Just £162 remained in the bank on the pub's first day of trading.

But the cheap furniture was not a great saving - much of it broke and needed to be replaced. "Because things weren't done properly in the beginning, we are always spending money on maintenance. So although business is good, the balance sheet isn't, and we look nowhere near as profitable as we are," says Dodds.

Trading is now steady - the £5,000 a week turnover in the beginning has grown to an an average weekly turnover of £20,000, with a wet:dry split of 65:35. This has given Dodds confidence to negotiate with Scottish & Newcastle (S&N) about refurbishing the kitchen, restaurant area and exterior decor. The cost would be borne by S&N and recovered by way of a rent increase - which is not desirable - but, once again, Dodds cannot borrow.

"We can't afford to make the improvements which would increase business, so there's lots of pent-up potential. We need to trade for another year before things can be sorted out," says Dodds.

Lunch covers vary in the 65-seat restaurant - there can be as many as 30 but the figure is usually 15-20. For Sunday lunch there can be up to 70 covers and weekday evenings are around 40 with upwards of 70 covers on Friday and Saturdays. "The most we have done on weekend evenings is 91 but we could do 150 if the kitchen was refurbished," says Dodds. "The plans are done, we just need the finance."

Dodds also lacked business know-how. He understood the service elements of running a restaurant from 10 years as a bartender, waiter and manager, but was a relative beginner when it came to the business angle. And the lack of cash meant he was unable to take on staff with the necessary experience. "Key members of staff should have been experienced people, but I couldn't afford them," he says. "It sounds farcical, but the staff were recruited from among my girlfriend's friends from her art history course at college."

There were 13 staff, all part-time, working on opening night and they took a total of £880 including 40 covers in the restaurant. Today there are seven in the kitchen, three waiting full-time, five part-time in the restaurant and four full-time in the bar. There are two office staff who also work in the bar and restaurant. Although Dodds worked in both the restaurant and bar to start with, he now spends most time on administrative tasks.

Second lease for cash-flow

The continuous need for finance because of cash-flow problems led Dodds to take the unusual step of acquiring a second lease. The new premises was on a 28-day rolling lease with Inntrepreneur, and Dodds hoped it would improve his financial difficulties. "I couldn't get an overdraft for the Sun & Doves so I opened a second business to help cash-flow," he explains.

Pacific, also in Camberwell, had just £17,000-worth of refurbishment over three weeks before opening as a music bar in October. "Pacific was very successful and the good business alleviated the problems at the Sun & Doves. It was a dead cert until we had problems with the licence."

Dodds had not inspected the licence closely enough and discovered his late-night licence was restricted to 100 people. Fire regulations prohibited more because the exit doors were too narrow. Unaware of the restriction, Dodds initially packed the house to capacity - about 300.

Southwark Council was not long in fining Dodds and he nearly had his licence revoked. "We just couldn't make money with a 100-people limit," he says.

Inntrepreneur stepped in and arranged for the doors to be widened and the licence to be increased to a limit of 200, which has helped. Dodds recognises he had insufficient advice. "There is no service available for straightforward advice for business novices, such as how to reconcile figures with projections," he says. "Licensing application procedures are obscure and archaic and the industry is beleaguered by licensing problems."

Despite his rocky start, Dodds still has high hopes for the future and plans to expand, although he vows his next venture will not be undercapitalised. "It's essential for any business to expand. There is a responsibility to expand to provide career prospects for staff. You lose staff if there is nowhere for them to go within the company," says Dodds.