More business failures expected for hospitality SMEs

31-Jul-2011 - Last updated on 26-Apr-2021 at 17:42 GMT

Around 5,000 hotel, restaurant and pub SMEs have closed since the start of the recession

Small businesses in the hospitality sector should be particularly vigilant of their business strategies over the years ahead, as corporate financial analysts warn that the worst is still to come.

Speaking to BigHospitality, the corporate financial health monitor Company Watch said that small businesses usually suffer most around a year to 18 months “after everyone thinks it’s over”.

Hospitality businesses are particularly vulnerable, as the sector has been amongst the worst hit by the recession, said Nick Hood, head of external affairs at Company Watch.

“It’s been a very tough two years, but the worst is still to come,” he said. “It’s not the recession that’s most dangerous, it’s the recovery.

“Small and medium sized businesses (SMEs) struggle through the hard times. They survive and come through the other side without any reserves. And as they grow, they realise that they can longer get the working capital they need, and that’s when the real trouble starts.”

Business failures

Over the next two years, Company Watch expects another 80,000 SMEs to fail in the UK before economic recovery sets in.

In the two-and-a-half years since the start of the recession, there have been around 90,000 business failures in the UK, including 61,000 insolvencies and 29,000 trading-related personal bankruptcies.

Of these, at least 80,000 have been SMEs, and around 5,000 have been hotels, bars or restaurants.

The worst hit sectors have been property and construction, which have made up around 25 per cent – or 20,000 businesses – of company failures, followed by business services (14 per cent), manufacturing (9 per cent), retail (7 per cent), and hotels, bars and restaurants (6 per cent).

Hospitality in recession

“The hospitality sector has been particularly badly affected by the recession, with 4,854 business failures since the start of the recession, equivalent to 6 per cent of all insolvencies across the whole UK economy,” said Hood.

“A noticeable feature is the high percentage of personal bankruptcies – over 40 per cent of the total – showing what a high risk sector this is with so many pubs and restaurants being run by individuals or as partnerships without the protection of limited liability status.

“This turns a business drama into a personal catastrophe for many hard working people.

“Sadly, there is no sign of light at the end of the tunnel, with consumer spending continuing to plummet as government austerity measures bite deeper and deeper into disposable incomes.

“The next two years will be a very testing time for those running businesses and working in the hospitality sector.”