According to data from the Insolvency Service, a total of 3,347 restaurants and cafes have been unable to pay their debts over the last two years. This is forecasted to continue to increase with an average of six restaurants being declared insolvent every day in 2023, which has led to the highest quarterly figure in a decade in the first quarter of 2023.
UKHospitality CEO Kate Nicholls believes “these businesses faced a challenge going through COVID, and as a result of that they’ve got very high levels of debt. So, interest rate rises have impacted on their ability to remain viable”.
The government introduced the Bounce Back Loan Scheme which allowed businesses to take a loan up to the sum of £50,000, with no repayment required for 12 months and an interest rate of 2.5%, as a result of the COVID-19 pandemic. Although this scheme was initially beneficial to companies, it still requires to be paid back and some restaurants are struggling to do so.
There are other reasons for the increase in struggling restaurants, such as:
The increasing cost of ingredients.
An over-saturation of restaurants which can result in more choice and less ‘regular’ customers.
The pressure to compete with rival chains, smaller pop-up restaurants and online delivery firms.
Changing lifestyle trends such as healthy eating and sustainable food sourcing meaning restaurants are losing customers due to the food they are serving.
Inflation peaked at 11.1% in October 2022, it is not just the restaurants feeling the affects but also the consumers, meaning they can’t afford to eat out as much as they may have previously.
If you are a restaurant owner whose debts outweigh their bills or you simply cannot pay your bills on time then it is important to seek insolvency advice as soon as possible to try and rescue the company.
An example of an option available to you is a Company Voluntary Arrangement (CVA). This involves a formal agreement between a company and their creditors to repay their debts over an extended period of time. This can be crucial in saving your company as it will provide breathing room.
With the increasing number of struggling restaurants & cafes, it is crucial that directors seek advice as soon as they foresee insolvency. Whether you are a business owner or a creditor of a business, our insolvency team at Farleys offer advice on these matters. To discuss your circumstances in confidence, please call 0845 287 0939 or contact us by email.