Northern Ireland’s hospitality sector has been facing an uphill battle to keep afloat, and despite the summer season typically being a busy one, soaring operational costs, higher interest rates, reduced consumer spending and increased duties on alcohol have left behind a complex mix of challenges to navigate.

Figures published in June 2023 also show a six per cent rise in tax debt which has now reached over £44bn. According to HMRC, the majority of the tax debt is owed by small and medium-sized businesses (SMEs) may of who are struggling with cashflow as inflation rises.

Sinead Campbell, Head of Money, Debt, and Quality at Advice NI explains, “We’re hearing from business owners that operational costs are at the crux of their immediate challenges. With labour shortages continuing to affect the industry, many owners feel they have to promise hours to staff to retain them, but this is creating a pressurised financial environment in the periods where business is slower.”

In addition, some hospitality businesses are still facing the aftermath of pandemic-induced borrowing with high repayment costs.

Sinead adds, “With businesses still recovering from fallout of the pandemic, it’s easy to understand how many are behind or at risk of falling behind on repayments. We want businesses to know they don’t have to figure out their financial difficulties alone. The best step is always exploring their options and seeking advice from a business debt expert.”

To support struggling businesses, Sinead has shared her advice to proactively manage finances.

Dynamic Budgeting

Sinead says, “One strategy to weather the storm is defensive budgeting. A dynamic style of budgeting where business owners take a ‘worst case scenario’ approach to spending and forecasting to keep the company in profit and mitigate risk. Defensive budgeting allows for things like increased wages and changes to business taxation and identifies where costs can be trimmed through negotiating with suppliers or revisiting pricing.”

Mastering Cash Flow

Understanding and improving cash flow is crucial for the efficient functioning of any business as Sinead explains, “Even if a company boasts a high profit margin, low cash flow can lead to financial struggles, and we’re now seeing HMRC cite cashflow challenges being reflected in business failure rates. With insolvency reaching a 14 year high it shows just how important it is for businesses to master cashflow and avoid higher interest rates as a result of late payments.

“One method to mitigate this risk is by creating a 12-week forecast that compares cash receipts with expenditures to determine net cash flow. This helps offset the challenge of unexpected cash flow crises and serves as a valuable tool to manage all payments.”

Effective Credit Control

Credit flow is crucial Sinead explains, “Credit control is the process of managing accounts and invoices that are yet to be paid. By regularly monitoring these businesses can improve cash flow. I’d recommend always invoicing as soon as possible along with setting clear and fair credit terms with customers to make it easier to oversee late or missed payments.”

Facing Creditors

Facing creditors might seem daunting, but it’s important to address financial issues head-on says Sinead. “If you’re concerned about missed (payments) or missing a payment, contacting your creditors early on is helpful in many cases. As part of our support services, Advice NI’s Business Debt Advisers may also be able to negotiate on your behalf.”

Sinead adds, “In the last twelve months Advice NI’s specialist Business Debt Advisers have managed £7.96m of business debt, signalling that we’re a great first step in finding a solution.

“Business owners can browse our website, www.adviceni.net/money-debt/business-debt, for full details of the service, and our Money Talks hub which offers a host of useful online business factsheets and letter templates, as well as tools and information such as a budget planner which can be useful for revenue forecasting and a comparison tool outlining energy supplier tariffs throughout Northern Ireland.”

Advice NI and the Independent Advice Network is made up of 64 members and more than 300 advisers across Northern Ireland, all providing free, impartial, and confidential advice. Struggling businesses can call 0800 915 4604 or email [email protected] where they can speak directly with an adviser between 9am and 5pm, Monday to Friday.

ENDS