Analysis of credit risk scores and balance sheet information of all 50,900 British restaurants found that 10,388 (20% of the total population) have negative net assets on their balance sheets, which means they are deemed to be technically insolvent.
Of those restaurants, 6,128 have a Delphi Risk score in the ‘maximum risk’ category.
According to Price Bailey, businesses deemed ‘maximum risk’ find it difficult to access funding without personal guarantees from directors and are highly likely to be subject to winding up petitions or intention to dissolve notices in the next 12 months.
Restaurant closures are currently running at their highest level in over a decade, smashing the previous decade-high total set only a year previously.
Some 1,409 UK restaurant businesses entered insolvency in 2023/24 (year ending 30 September 2024), up from 1,180 in 2022/23 and reflecting a 19%.
The number of restaurant insolvencies has continued to rise in 2024 despite numbers falling in most other sectors of the economy.
There were 363 restaurant insolvencies in Q3 2024, slightly down on Q2 when there were 370 insolvencies (the highest quarterly total in over a decade).
“Unlike most other sectors of the economy, insolvencies in the hospitality sector are still rising,” says Matt Howard, head of the insolvency and recovery team at Price Bailey.
“There has been a sharp rise in restaurants entering insolvency over the last six months and the sector’s woes look set to continue.”
Howard notes uncertainty in the run-up to last month’s Autumn Budget dented consumer confidence just when the sector was starting to feel the benefit of lower interest rates.
This is likely to be further exacerbated next year by the impact of the Budget, which will see businesses hit with rising employment tax measures, as well as a hike in business rates, from April 2025.
“Like most high street businesses, restaurants operate on profit margins of just three to five percent, which means that they often walk a balance sheet tightrope from one quarter to the next,” Howard adds.
“While a bumper festive season may tide struggling restaurants over into the new year, increases in the minimum wage and national insurance from the second quarter of 2025 could sound the death knell for many.”
Price Bailey’s analysis follows warnings from other analysts that the impact of the Chancellor’s Budget could lead to a spike in hospitality insolvencies.