Hospitality
Hospitality Insolvency
If you are under financial pressure we can help. You maybe running a hotel, restaurant, cafe or pub. One key question we will ask you early on is do you want to try and carry on? If the answer is yes we will try and help you do that. If the answer is no then we will help you with a more organised closing down.
This business sector has had a lot of problems that have all affected profitability. Some examples of the issue are:
- This sector works on very tight margins. It only works if you are busy all the time.
- Rising staff wages due to the increased minimum wage.
- Workplace pensions costs have gradually moved onto the employer.
- The increased costs of food and wine imports as the Euro has got stronger.
- Rising business rates.
- Increased competition from home food delivery.
- The virus forcing a closing down.
These issues have affected all hospitality industries.
How to save the business?
- The government backed furlough scheme can be used in Administrations but not liquidations.
- A pre-pack Administration or Company Voluntary Arrangement can be used to try and save a business.
- It helps if you have a supportive longer term thinking landlord.
- Most suppliers want you to keep going – they do not want to lose a customer.
We can help in the following hospitality sectors:
Hotels
Customers of hotels forget that 20% of what they are paying goes in VAT to the government. This coupled with high wage costs and the issues above making running a successful hotel hard work and it is only really a profitable business once you have a critical mass of people wanting to book all the time.
Typical issues for hotels are also high capital costs to buy the property and the continuous need for refurbishment using up any spare cash flow.
Once a hotel gets a bad credit rating as well the credit card providers start to hold back card sales and may withhold funds. Nearly everyone pays for their hotel room now by card.
Pubs, Clubs and Bars
We deal a lot with the insolvency of pubs. If they are lucky (usually down to a good accountant), they have set up the ownership of the freehold or lease personally but have operated through a limited company.
The reason this is beneficial is that the company can be liquidated, and the debts end with that company closing. The owners can then set up a new company and at least carry on.
Pubs are long hours and lots of hard work with little personal time. Often the owners have a false ‘good’ impression of the cash flow because the VAT is not payable until the end of the quarter but once they get behind with that and the PAYE they will be in trouble very quickly.
One useful insolvency tool we use for pubs is a Voluntary Arrangement – this can be used to freeze the debts whilst the pub is wound down or sold.
Restaurants and Cafes
This is a tough industry to be successful in.
It is long hours, hard work with very high food and employment costs. There are usually high site costs in rent and rates plus often a usual substantial refurbishment to open. There is very little margin for profit in this sort of business.
The only way restaurants make money is to keep very tight control of the food costs, wages, by being busy, and operating near full use of the available covers (customer chairs) all the time. They also need to make sure they keep track of the VAT liability and PAYE so these are paid on time. Once you get into arrears of these costs you quickly get into financial trouble.
In some cases where there is a chain of restaurants then the owners can analyse the profit making and loss making sites and use a pre-pack Administration or Company Voluntary Arrangement to try and rescue parts of the business. For single sites in financial trouble the outcome is usually closure by liquidation.
There have been a number of high-profile failures in this sector in the last few years and this trend will continue.
David Kirk
Kirks Insolvency
David qualified as a Chartered Accountant in 1990 and Licensed Insolvency Practitioner in 1996. David will give you clear and plain language advice about your business’s options and make a recommendation of which route he thinks will work best for you.
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“Very efficient and cost effective”
I have found Kirks Insolvency to be very reliable in terms of their dealings with us as their customers. They are clear in terms of the process and what it entails and are very prompt when it comes to communications. I would recommend their services.
Michale P
Business owner
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