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High chance of failure for hospitality businesses
A new report shows that restaurants and bars are three times more likely to go bust than other UK businesses.
The study, by chartered accountancy group UHY Hacker Young, states that of more than 150,000 business failures over the past year, 15.5 per cent were down to companies in the hospitality and catering sector (restaurants, pubs and hotels). This compares with an overall average of 5.2 per cent for the UK economy.
According to researchers the difficulty in raising second-round financing, poor market research and financial planning – as well as the challenge of building a loyal client base to protect against changing consumer tastes – all contribute to the high business failure rate.
Spokesperson Peter Kubik said: “There are lots of anecdotal warnings about the failure of restaurants in their first year and they are all true. As Gordon Ramsay’s and Jamie Oliver’s experience has shown, even celebrity chefs can struggle to turn success into immediate positive cashflow. For an entrepreneur, who has less patient backers, it can be very tough indeed.
“The restaurant business is a very competitive sector. It takes time to build a loyal client base. With few assets against which restaurants can raise working capital, keeping the business running, while trying to build that reputation is tricky.”
In addition, hospitality companies have seen their costs rise significantly as a result of increases in the minimum wage.
Long-term rises in alcohol duty on beer and wines have also hit pubs and hotels hard, and it is likely that the forthcoming smoking ban in England will add to the financial pressure.
Other sectors most likely to fail include distribution (17.3 per cent), manufacture household furnishings (11 per cent), marketing services (8.9 per cent) and personal services such as hairdressers and beauticians (8.1 per cent).