Professional Comment

How Hospitality Businesses Can Weather The Economic Headwinds

By Rosalind Catto, business advisory partner and Head of Hospitality and Tourism, Johnston Carmichael (  

It’s been a stormy start to the year, and the economic headwinds haven’t been any more forgiving.

The hospitality sector has shown remarkable resilience in recent years but even the most buoyant businesses are likely to feel squeezed on all fronts as we march further into 2024.

Not only are they facing increased borrowing costs, energy price increases, staff shortages coupled with increased wage costs and increases in direct food and drink costs, the cost-of-living crisis has led to a decline in bookings and consumer spend.

Businesses that have navigated their way successfully through the past of couple of years, have done so by being on the front foot, by remaining agile enough to adapt their businesses to manage these turbulent conditions.

Key to this is having access to current and regular financial information. Whether prepared internally by the business or outsourced to an accountant, this will information allow the business to monitor their profit and loss, cash flow and vitally track its key performance indicators (KPIs).

KPIs for the hospitality industry will vary depending on the individual business but keeping track of KPI data, for example, revenue, occupancy or food and beverage sales will allow a business to make effective decisions based on previous performance and identify the various factors that affect the business’s performance. Having the knowledge to quickly adapt pricing for room rates, menus and products is key to remaining profitable in this ever-changing economy.

Faced with what seems an inevitable ongoing reduction in demand across the sector, keeping the consumer offering fresh and appealing, with friendly and knowledgeable service is key. The more successful businesses are those who have been innovative with their offering and tried new things, including food and drink themes, menu variations and entertainment. Some of these do take modest additional investment and a degree of risk when cash is tight, but often the greater risk in challenging times lies in standing still.

Engaging with stakeholders is vital to gauge performance. Regular consumer and staff feedback can help inform modifications to service offerings, with the added benefit of enhancing engagement and loyalty. External professional advisers with sector expertise can also be used as a sounding board for potential new ideas, looking at “what if?” scenarios that can make the critical difference in key decisions.

Every business has its own unique challenges dependent on how it is set-up financially but crucial for most businesses is to:
• Review the operating model during the off season and seek to minimise costs as much as possible but not to the extent that they cannot meet demand later in the year.
• Critically, engage with their suppliers and creditors. This might require agreeing delayed payment terms but with full disclosure about the current situation and future prospects.
• On longer term debt – are there options for repayment holidays or consider refinancing.
• Cash flow forecasting is critical to allow above decisions to be made.