2024 has only just begun, and we’ve already witnessed a spate of small business closures across the hospitality sector. With the winding up of independent businesses across England, Wales, Scotland, questions have again been raised about the amount of governmental support available to one of the UK’s most beloved – and hardest-hit – industries.

As hospitality businesses across the nation deal with fixed cost increases, the message has become clear – sink or swim. The ability to adapt is vital. How prepared is your business to survive in 2024?

The big picture

Data from CGA by NIQ, revealed in 2023, highlighted that the total number of licensed premises in the UK had fallen by 30% since 2003. That’s the equivalent of just over six closures a day over the last twenty years.

Successive governments have failed to provide adequate support for hospitality businesses, and, after a string of crippling events such as Brexit, COVID-19, and inflation, many businesses find the outlook to be understandably bleak. Although optimism has increased slightly within the hospitality sector, it was still found to have the lowest level of confidence among major sectors, according to FSB’s Small Business Index from Q3 of 2023.

What issues are hospitality businesses facing?

Sadly, for businesses operating in hospitality, there are a myriad of challenges facing the sector at the moment. The UK’s pubs, clubs, restaurants, cafés and hotels have been dealing with one issue after another for years now, leading celebrity chef Tom Kerridge to quip that the restaurant trade is like “walking uphill, on glass, barefoot.”

Rising costs are at the forefront of the issue – average annual costs have skyrocketed, with 56% of hospitality businesses reporting their annual costs had risen by at least 10% in the past year. It isn’t a new trend – hospitality was one of the worst-impacted sectors during COVID-19. And, with patrons also feeling the squeeze, meals, drinks and clubbing have been one of the earliest sacrifices.

Sky-high business rates are another vital problem confronting the industry. A survey released in November 2023 by the British Beer and Pub Association (BBPA) showed 60% of respondents viewed government action on business rates as a top priority. Some licenced businesses have been particularly impacted, as Rishi Sunak moved to increase alcohol duty this summer.

To compound these issues, external factors, such as the ongoing train strikes, may be causing hospitality businesses to miss out on potential custom. This January, proposed tube strikes are set to cost London hospitality businesses a combined £50m in lost sales.

How can hospitality businesses guard themselves against these issues?

Hospitality businesses have limited options at their disposal, but there are a few different courses of action which can prevent your business from being overly impacted by rising costs and business rates.

Carl Johnson, Head of Asset Finance at Anglo Scottish Finance, works closely with hospitality businesses to help provide access to expensive software, fixtures and fittings or facilities. Here, he outlines some of the ways you can protect your hospitality business against the issues facing the industry.

Diversification

Restaurants, cafes or pubs which operate as sole traders in a single location are less insulated against sector-wide issues. Rising costs are all the more impactful when the entire business hinges on a single revenue stream in a single location.

Johnson comments: “Diversifying your revenue stream is one of the best ways to protect yourself against rising costs. Think about how you can add value to your business – pubs with accommodation, hotels with co-working spaces or coffee shops that host events are more protected against rising costs.”

Investment in these other arms of the business is undoubtedly daunting, given the present financial landscape. However, it can be the difference between your business surviving or not. If your business is seasonal, think about how you can use under-utilised facilities to keep things ticking over during the quiet season.

Cash flow protection

Oftentimes, businesses in hospitality can be hamstrung by cash flow bottlenecks. Hotels offering pay-on-arrival rates can be badly affected during seasonal lulls, as can catering or restaurant businesses that must buy bulk ingredients.

Facilities such as invoice finance are enabling businesses like these to leverage their unpaid invoices and receive an instant cash injection into the business.

Trimming the fat

In the face of rocketing costs, streamlining the less-efficient areas of your business can have a huge impact on your bottom line.

“Getting visibility over which areas of your business are least efficient is step one,” says Johnson. This can be difficult, especially if you’re working in a hands-on role. Software solutions like Clock PMS provide hotels with complete visibility over business operations, are cheaper than hiring a consultant and can let you know exactly where your expenditure is being wasted.

Whether it’s in the form of wasted ingredients, underutilised kitchen capacity or overspend on poorly performing products, these forms of software have the ability to revolutionise how your business operates.

Spreading the cost

Given the issues facing hospitality at present, it’s little surprise that most businesses are not as financially liquid as they’d like to be. Unforeseen issues with crucial business components, such as industrial refrigerators, air conditioning or coffee machines, can be paralysing, given the cost of these items.

Johnson comments: “In the event that vital machinery breaks down or needs to be replaced unexpectedly, hospitality businesses must be aware of the facilities available to them. Dedicated asset finance solutions aimed at the hospitality sector are designed to help spread the cost of expensive purchases and maintain a healthier cash flow.”

The outlook going forward

Businesses throughout the hospitality sector have been constantly innovating and adapting in order to stay afloat amidst these challenging economic conditions. However, in order to properly insulate and protect the sector to sustainably grow in the years ahead, increased levels of government support must be required.

Trade body HospitalityUK has, in conjunction with a number of independent hospitality businesses across the UK, been campaigning for the government to drop VAT rates for the sector. A petition started by restauranteur Andy Lennox calling for VAT to be dropped from 20% to 10% currently has over 3,500 signatures.

With wages, inflation and fixed costs showing little sign of slowing down, the government have a decision to make – increase the level of support provided to the hospitality sector, or risk the end of one of the UK’s most culturally significant sectors.

Business rate relief has provided some support, but the restaurant closures across Wales – where relief was dropped from 75% to 40% – indicate that this level of support is barely enough to keep our hospitality sector afloat.