Business insolvency can be a worrying time for Directors who've given personal guarantees on company loans. What are the implications?
It’s been suggested that the decade of austerity may be at an end. This has been a period that’s been tough for businesses and especially hard on the high street. High profile retail chains are regularly in the news due to their financial difficulties and some well loved big names have had to be bailed out by investors or have folded entirely following insolvency.
It has been apparent for some time that restaurants are also struggling and the number of restaurant insolvencies and closures is up by a third so far this year. There are numerous reasons for this and a few of these are discussed below.
Restaurant Customers Can Be Fickle
Always a risk for restaurant businesses is the danger of falling out of fashion. Today’s must visit eatery can, almost overnight, become yesterday’s news. Building and maintaining a loyal customer base is notoriously difficult for restaurants, making revenue unpredictable. There’s so much choice for diners and when there are lots of places to go and eat, it can take a lot to persuade people to visit once, let alone visit the same place twice.
Restaurant Costs Are Increasing
As with any business, there are certain built in costs which have to be paid. Staff costs are on the rise. Catering staff aren’t always particularly well paid, but increase in the national minimum wage impose pay increases for these workers and the higher national living wage also puts pressure on restaurateurs to pay more still.
Staffing costs aren’t the only expense on the rise. The cost of premises, utilities, fixtures and fittings and, of course, food and drink itself are all more expensive than they were. With so much competition and with customers being evermore price conscious, it is difficult to put up prices to cover these extra costs.
Restaurant Chains – Oversupply, Under-demand and Underwhelming Experiences
Dining out is as much about the experience as it is the food. Above the very cheapest price points, spending money to eat away from home should feel like something of an occasion and larger chains especially have fallen victim to service and food which falls below the standard choosy consumers expect for the prices they charge. Consumers who, thanks to a range of online reviews and recommendations at their fingertips can easily find somewhere better, leaving big name ‘fallbacks’ abandoned in favour of more interesting, newer or better alternatives.
This could well have been the fate of some of the better known restaurant chains which have closed or experienced financial difficulty of late. Similarly, overly aggressive expansion of a chain can leave finances spread too thin to cope with financial bumps in the road.
How Can Restaurants Avoid Insolvency?
While the catering and hospitality industries can be tough industries to survive in, they are still businesses and as such, there are strategies that can be taken to reduce the risk of insolvency and give a restaurant business a better chance of staying afloat.
Great service and even better food are of no use without being able to keep business finances under control and maintain a healthy cashflow. This is something which Lines Henry, as Licenced Insolvency Practitioners are well placed to assist with.
Speak to us, we can help.