Christmas lights going up and being turned on all over the country means that we’ve finally entered the festive season.
It’s the busiest time of the year for restaurants, bistros, food service firms and other hospitality companies and for good reason as the need to eat, drink and be merry becomes intensified by the early darkness, twinkling lights and the delicious sights and smells they provide us with.
Hopefully it’s going to be a good one as new analysis shows that insolvencies in the hospitality sector have increased year-on-year by 5% to their highest levels in a decade.
They rose from 3,490 in the 12 months to September 2023 to 3,679 in the same period to September 2024.
Chris Horner, insolvency director with BusinessRescueExpert said: “Ironically food and accommodation insolvencies had fallen for the third consecutive month so in context this might be a period of calm before a storm.
“Recent cost increases were announced in the Autumn Budget such as increased employers National Insurance Contributions and additional compliance changes under the Employment Rights Bill such as an increase to the living wage and other uplifts. Additional costs will put further pressure on operators’ margins meaning that more insolvencies will be likely.
“There will be hope that a busy festive season will help overcome subdued consumer confidence and help build up a buffer before changes come in at the beginning of April next year.
“To use restaurants as an example, they will likely operate on profit margins usually between just three to five percent. This means there is little wiggle room for bad quarters or extraneous events..
“This is in addition to other capital intensive investments such as fit-out costs, so many will usually be carrying relatively high levels of debt with them. This could be eased by interest rates continuing to fall in the new year but this relief could then be cancelled out by the higher employment costs.”
If this wasn’t reason enough to be concerned, it arrives at the same time as other new research that shows that more than one in ten restaurants (12%) are facing serious risk of closure within the next 12 months.
Analysis of the balance sheets and credit risk scores of all 50,900 restaurants in the UK found that 10,388 (20%) had negative net assets on their balance sheets which means they are technically insolvent.
If they remain unable to make payments to suppliers or lenders when they fall due then they will be vulnerable to creditor actions such as statutory demands and winding up petitions.
Of these 10,388 restaurants over half – 6,128 (12% of the total) were deemed to be at maximum risk of liquidation. This is an increase of 1,172 from a year ago when 4,956 (10%) were both technically insolvent and at maximum risk from creditors.
The best thing any hospitality business can do apart from being ready to be run off their feet in the coming days and weeks is to get in touch with us for some impartial, professional advice.
Once our advisors have a clearer understanding of the unique circumstances facing your business, they’ll be able to work with you to come up with some realistic options to help the business mitigate these tough times and hopefully re-emerge strong and stable in 2025.