Reviewed: 19th April 2017
Rising employment costs and a fall in the value of sterling are just two issues causing financial difficulty for hotel business owners in the UK. Insolvency statistics show the ‘accommodation and food service’ sector suffered almost 1,500 insolvency events during the 12 months ending September 2016.
An increase in the cost of employment following the 2016 introduction of a National Living Wage (NLW), has resulted in employees over the age of 25 being entitled to a minimum of £7.50 per hour.
The government intend to increase this amount to £9 per hour by 2020, which means there is little respite on the horizon for hotel owners in terms of payroll costs. Members of staff under the age of 25 are entitled to receive the National Minimum Wage (NMW), which starts at £4.05 for under-18s.
A further financial burden is presented by the pension auto-enrolment scheme, whereby all UK businesses must offer a workplace pension for eligible employees. The cost of setting up and administering a system such as this can be significant, particularly for small and medium-sized hotel businesses already operating on tight profit margins.
There is new competition from firms such as Airbnb, as well as several motel chains that offer a basic but comfortable service. Popular with families and those travelling on business, they threaten to steal some of the market share enjoyed by smaller hotel businesses.
This problem has been compounded by the emergence of internet comparison websites which allow customers to view unambiguous pricing, and clearly see which location offers them the better deal.
Any increase in business rates is keenly felt by the hotel industry due to the sheer size of the properties. A revaluation of business rates usually takes place every five years, but the government decided to postpone the latest revaluation for an additional two years.
In this time, property values have increased so much in some areas that it has caused a serious distortion in the liability faced by hotel owners. Considerable increases are causing businesses to become unsustainable, and forcing their closure.
Although they are able to appeal against the rateable value assigned to their property, this can be a time-consuming and costly process that guarantees no alteration to the business rates bill.
Hotel owners are using a variety of methods to cope with the increased costs, including:
In December 2016 the think-tank, Resolution Foundation, published a report about the effect of the National Living Wage on low-paying sectors, including those in hospitality. They discovered,
“... the overall proportion of employers saying they’d used some increase in prices as a means of coping with higher wage costs stood at two in three (66 per cent)”
The withdrawal of staff benefits such as subsidised accommodation and food, has saved money for some hotel businesses. These solutions have potential dangers, however, in that lowering levels of service or removing benefits for staff, can create dissatisfaction among both guests and employees.
Even if your business has not reached the point of insolvency, you will benefit from seeking early professional insolvency guidance. A licensed IP will be able to advise on various options, and how each path would affect your profitability.
Another major benefit of obtaining professional assistance is in relation to creditor negotiations, particularly if you have tax arrears and need to make contact with HMRC. They can be a difficult creditor to deal with, and are known to act swiftly and decisively in the recovery of debt.
Real Business Rescue is part of Begbies Traynor Group, and specialises in business rescue and recovery. With specific knowledge and practical experience of the hospitality industry, our experts will provide you with the guidance you need to survive.
If you are experiencing high levels of debt, fear insolvency, or simply want to prevent further financial decline, call one of our expert team. We offer a confidential same-day consultation free of charge with a network of 75 UK offices.