Increase in UK hospitality businesses facing 'significant' financial distress

Figures in the Q4 2013 update revealed that significant distress levels were up 28 per cent in the hotel sector and up 13 per cent in the bar and restaurant sector.

Partner at Begbies Traynor, Julie Palmer, said this reflected a “growing fragility” among the small business community, with smaller companies struggling to keep up as the economic recovery gathers pace.

“As is common at this stage of any recovery process, businesses with inexperienced management teams or limited credit availability are simply unprepared to step up a gear and fund and execute the business strategies required to remain competitive in a growing market,” she said.

“Such businesses will need to take urgent action to avoid slipping into more critical distress and to ensure they are well placed to take advantage of the economic recovery.”

She added that hotels were facing particular problems because larger ambitious chains were slashing prices and developing lower cost models, forcing smaller operators to compete at ‘unsustainably’ low margins.

“With hotel occupancy levels and revenue per room in the last quarter of 2013 falling, the hotels sector is in a difficult position as it enters the lean Q1 trading period,” she said.

Critical distress levels falling​

On a slightly more encouraging note, the report revealed that the number of UK bars and restaurants facing ‘critical’ financial problems fell by 9 per cent over the past 12 months, although levels rose by 13 per cent in Q4 compared to Q3 2013.

In contrast, hotel industry critical distress levels were up 37 per cent over the full year, but fell 24 per cent in the last quarter compared to Q3 2013.

The report said this ‘seasonal’ reduction in critical distress levels was “fuelled by Christmas trading as well as increased consumer spending due to improving job security and property prices – adding to a discernable ‘feel good’ factor’”.

Right direction​

To put the hospitality figures in context, there was a 4 per cent decrease in critical distress levels across all UK businesses last year, but a 16 per cent increase in businesses facing significant financial problems.

Ric Traynor, executive chairman of Begbies Traynor, said the statistics showed the economy was moving ‘in the right direction’, with businesses and consumers feeling more confident about their outlook for 2014.

However, he added: “While this positive sentiment is encouraging, we cannot overlook the fact that a large population of businesses continue to suffer from ‘Significant’ distress resulting from funding, management or accumulated debt issues.

“The next year will be a key period for these businesses to either sort out their problems and prosper or finally reach the end of the road.”