A look at the hospitality sector challenges in 2023 and what to do about them

14 February 2023

According to statistics released by the Insolvency Service recently, the hospitality sector accounted for 2,704 insolvencies in 2022 which represented 12% of cases, the third highest sector in the UK.

There are a number of unwelcome pressures on businesses in the sector particularly the recent rise in interest rates which adds to borrowing costs but equally reduces consumers’ non-essential spending as household budgets come under increasing pressure.

Furthermore, problems with supply chains, rising costs in raw materials, increase in utilities and wages costs coupled with staff shortages have meant we have seen many businesses in the sector struggle.

Problems with your supply chain

It’s important to regularly review your supply chain resilience, consider which parts are essential and any risks which may cause a break in supply. Where issues are identified consider building trading relationships with alternative suppliers.

Following the withdrawal of Covid-19 support, business rates are a significant cost and if businesses have not already done so, they should consider instructing a specialist company to review the rates and seek any redress from the council, often on a no win no fee basis.

Cashflow reviews

In these difficult times it’s important that business owners proactively manage their cashflow and realistic forecasts should be produced.

These should be regularly reviewed and updated to reflect changes in trading conditions, underlying assumptions and interest rates. If a shortage of working capital is identified then prompt steps should be taken to cut costs, seek support from creditors by way of time to pay arrangements, consider raising additional finance or restructure the current lending.

Prices versus costs

In addition, it is imperative that the basics of the business are re-examined, is pricing correct following recent costs rises? Following a review may further costs savings be introduced? Can loss making parts of the business or product lines be discontinued?

The business may need to diversify to adapt to the post pandemic landscape by promoting on-line ordering, new sustainable products/processes or takeaway services.

Perhaps strategic alliances may be formed to increase activity or share costs with another complimentary supplier.

Adapting your business to the economic environment

As consumer spending behaviour changes and is likely to be remain subdued in 2023, its imperative that those in the sector are able to demonstrate that they can adapt their business model to remain attractive.

The goal is to re-evaluate the business, where it is now and where it needs to be and make prompt changes which will allow it to adapt and thrive not just survive in an ever-changing sector and avoid a formal restructuring process.

Regardless of the size of your business or the severity of financial distress, it is always advisable to seek professional advice as early as possible. An early consultation is more likely to be successful as there are more options available.