Henry Page is a partner and Louis Byrne is Corporate Restructuring Manger at Mercer & Hole.
Henry can be contacted at henry.page@mercerhole.co.uk  or www.mercerhole.co.uk

The forthcoming government inquiry into the effect of Covid restrictions on the hospitality industry has already been criticised by a number of industry leaders for its terms of reference not going far enough.

For many businesses in the sector, the complete closure, partial openings, tiers with different restrictions and the numerous other measures that were expected of them during the pandemic, has left them still dealing with a legacy of debt and working out how to rebuild their business and recover for the future.

The numbers are quite simply staggering for the sector. UK Hospitality has over the last two years gone from £130bn economic activity to £115bn lost sales, 660,000 lost jobs and 8,000 fewer licensed premises.

And there are still substantial pressures on the industry including the increase in the National Living Wage and NIC contributions, spiralling inflation adversely affecting supplier and energy costs, hospitality VAT reverting back to 20% and the repayment of CBILS/BBLS kicking in. So, what is the best way for the sector and businesses of all sizes to rebuild and recover?

Firstly, remember the positives. It is estimated there will be approximately 123 million overnight domestic trips in the UK this year, a 23% year on year increase on 2021.

People will need food, drink and entertainment to fill their leisure time, but remember that their expectations and requirements may have changed over the last two years. People have been more used to cooking at home, trading up on the quality of food and drinks, more interested in supporting seasonal produce and local producers and people are also living and working in a different way.

Many people have yet to make a full return to the workplace and some never will, with more hybrid working arrangements in place. And naturally some people are still more cautious about future variants of Covid and are therefore being more selective about where they socialise. Covid 19 has changed consumer behaviour so understanding how your customers have changed and therefore how your business needs to change now or in the future to meet those different needs is essential.

There are a number of financial considerations (the basics) which it is important to remember.
• Cash is key. Directors should be utilising real time cashflow projections to assess the pressure points and potential funding gaps.
• Look at where there is the cash in the business that can be accessed quickly. For example, are stock levels appropriate or can they be reduced. Can payment terms with suppliers be extended?
• Look at whether there are assets that the business can sell to release cash and if necessary replace on a lease basis to help cash flow.
• Our experience has shown that landlords may still be willing to “share the pain” by deferring rent payments, reducing rent or moving to a turnover based rent. Consider discussions with the landlord if appropriate.
• Ask yourself if you still need the same level of commercial space
• Has the business considered seeking assistance from HMRC such as a Time To Pay arrangement?
• If the financial issues of the business are more structural then consider seeking to refinance if possible or bring in equity funding through a share issue or partial disposal of shares to a third party investor.
• It is important if the longer-term prospects are looking uncertain to seek professional advice early, to ensure the directors are complying with their duties and maintain value which may enable a business sale.
• There are also debtor in possession insolvency protections available such as a moratorium, restructuring plan or Company Voluntary Arrangement, or otherwise through the constructive use of insolvency process to protect and restructure a business or ultimately realise assets whether through a business sale or otherwise.

Certainly the sector has changed enormously over the last two years and will continue to do so. If you keep the financial basics under review, that will alert you to any immediate financial threats your business faces and help ensure ongoing success.