Unexpected business insolvencies

A couple of weeks ago, Flambards theme park in Helston, Cornwall, announced that it would be closing with immediate effect, citing “rising costs and a steady decline in visitor numbers”.

Unfortunately, it is a scenario repeated at tourist attractions across the South West region.

Challenges facing the tourism sector

Tom Roach, partner and head of hospitality and tourism at PKF Francis Clark, commented:

“The Budget has presented plenty of challenges for the tourism sector. Flambards’ decision to close was presumably a longer-term decision, but this is on the back of Dairyland closing on the same day and it is undoubtedly the case that the major aspect of costs for any of these businesses is employment costs.

“In hotels it is now common for wages to be 40% of turnover, compared to 30% a decade or so ago. This therefore means that the mix of income and multiples are vital to get right to ensure businesses remain tenable. For example, the number of guest houses either converting back to residential or restructuring to be bed-only properties is ever increasing.

“Ideally the UK government would support the tourism sector through tax concessions such as levelling up VAT with the EU or reintroducing rates relief, but unfortunately this does not appear to be a priority.”

The future of tourism in the South West

For businesses in the tourism sector who are struggling, we can help. Early advice is key.

We can assist in looking at revenue-to-cost ratios to consider viability, particularly in the face of rising employee costs in the shape of the increased minimum wage, the reduction in the lower earnings limit for employers’ national insurance (NI) and a 1.2% increase in employers’ NI. This will result in a cost to businesses of over £600 for every employee earning over £9,000.

There are undoubtedly many extremely successful and well-run tourism businesses in the South West region, but we appear to be far closer to a position where certain types and sizes of tourism businesses will struggle to survive regardless of how well they trade. It is therefore important that if a business finds itself in such a position that it considers ownership structure and alternative trading models.

Directors of struggling business facing insolvency must take care, as they have specific duties which, if breached, could have potential consequences ranging from disqualification as a director to personal liability.

Taking (and following) professional advice is a useful defence against possible future criticism.

Support for struggling businesses

Within the business restructuring team at PKF Francis Clark we have hospitality and tourism experts who can help directors of companies that are facing insolvency by, for example:

• Assisting in reviewing the financial position and prospects of the company
• Explaining the particular risks and exposures the directors may be facing
• Advising on options for the way ahead

We call this a strategic review, which can help directors chart the optimal course for the company and allay concerns about personal risks.

If you have concerns, contact any of our business restructuring and insolvency team for a free initial discussion without cost or obligation.