Hospitality and leisure sectors face further disruption and uncertainty

Business owners across the hospitality and leisure sectors throughout the UK need to take stock and prepare themselves for yet another turbulent year as the onerous restrictions imposed by the third national lockdown show no signs of being eased. Critical to this is to revisit the underlying assumptions that underpin their existing financial plans and ensure key stakeholders continue their support, according to Duff & Phelps, the world’s premier provider of governance, risk and transparency solutions.

All four nations of the UK entered the third lockdown on 4 January 2021, and businesses, including all hotels, pubs, restaurants and leisure facilities, were forced to close for the third time in a year. As yet, no firm dates have been given for the lockdown to be lifted as the UK’s vaccination programme is rolled out.

UK Chancellor Rishi Sunak MP announced a raft of further financial support measures for the sector, including £9,000 grants to businesses in a package worth some £4.3 billion. This was expected to support businesses in the period up to spring; however, with no sign of any good news for the sector in the short term, these measures are unlikely to be sufficient to secure the future viability of many businesses in the sector.

Paul Smith, Managing Director, Restructuring Advisory, Duff & Phelps, stated: “Hospitality businesses have faced the most challenging time imaginable over the past year. For many, 2020 will have been the year that they spent time and energy on negotiating repayment plans with the likes of landlords, lenders and HMRC, only to find that after an all-too-brief window of opportunity to trade, the door has been slammed in their faces once more.

“As another national lockdown continues, businesses need to revisit their financial plans and, amongst other things, review what agreements they had already negotiated with creditors. This is to ensure they keep a viable level of liquidity; otherwise, they could face repayments on existing debt with little or no income. In addition, while support is in place up to April, Q2 could be critical for many as government support dries up. Now is the time to get the house in order.”

Duff & Phelps has highlighted four core areas businesses throughout the hospitality sector need to take action on now to ensure longer-term viability:

1. Understand your cash position and talk to lenders. Work with your accountant or financial director to get on top of your current financial position; after all, you cannot change that position until you know what it is. Work with experts to identify what is owed and with who, and do not forget to analyse the historic performance of the business to illustrate its underlying strength.
2. Get ahead of HMRC. Work with experts such as Duff & Phelps when negotiating with HMRC on Time-To-Pay. There are numerous tax deferral schemes now in place from VAT to Corporation Tax, and while you may have negotiated a repayment schedule back in 2020, now is the time to reopen those discussions.
3. Communicate with your creditors. Given many in the hospitality sector are simply unable to trade, it makes sense that suppliers to that industry are also impacted. Business owners throughout the supply chain should explore conversations about debts together and hand in hand with financial advisors as a means of navigating cashflow.
4. Engage with landlords immediately. Since the outbreak of the coronavirus pandemic, the government has made a number of measures available for commercial tenants to assist them, such as the temporary abolition of business rates, the deferment of VAT payment and help with employees’ wages. However, one thing that is not affected is a tenant’s obligation to pay its rent, and despite the number of helpful measures granted by the government, tenants may still not be able to meet their rental obligations. Businesses, therefore, need to actively engage with landlords to agree to a rent concession.

Smith added, “Current reliefs such as Business Rates and VAT are expected to end on 31 March 2021 as are the current crop of business support loans. Industry groups such as the Federation of Small Business are already campaigning for a year’s extension to Business Rates Relief for the hospitality sector. But realistically, hospitality businesses are not going to see a substantial return to trade before then, not least because of the lockdown across all four nations in the UK. Business needs certainty, and with the potential for the restrictions on creditor enforcement action being lifted at the end of March, we would urge anyone in the sector to contact us to help them navigate the path of renegotiation with lenders, landlords, HMRC and trade creditors at this critical time.”