Coronavirus has wreaked considerable damage upon the world’s economy, not least the hospitality sector. Gareth Ogden, Partner at haysmacintyre talks to us about how you can help your business recover.
Just last week, in a completely unprecedented step, the Government announced the closure of all pubs, bars and restaurants across the UK, and so up and down the country, a vast number of businesses closed their doors and locked up for the foreseeable future.
Despite the unusual sense of relief experienced by operators when clarity was finally given and the sector was forced to shut down, there is little doubt as to the huge financial implications of coronavirus on the hospitality and leisure sector as a whole.
Many owners and operators of any hospitality business will likely be concerned about what the future holds for their business, as well as for their workforce. With income almost entirely cut for the vast majority, operators are now looking to reduce overall costs and improve their cashflow position wherever possible. Communication with all stakeholders including landlords, HMRC and suppliers is critical and will determine survival for many businesses.
One major concern is whether operators are able to continue supporting their staff throughout this period of uncertainty and prevent a flurry of redundancies. Thankfully, the Government’s Coronavirus Job Retention scheme has allayed some of these concerns. Any business will be able to register its employees who are no longer able to work as ‘furloughed workers’ through HMRC’s online portal, and up to 80% of these employees’ wages will be reimbursed by HMRC (which is capped at £2,500 per month), thereby reducing the burden of maintaining staff on the payroll throughout this period of time. However, further clarifications are yet to be set out by the Government – including whether the scheme applies where an employee’s contract entails reduced working hours and when the reimbursement system will go live. This is now a key issue for the sector and businesses continue to seek urgent clarification on how the scheme will operate in practice.
In respect of property related costs, the Government has announced that all hospitality, retail and leisure businesses in the UK, irrespective of rateable value, will no longer have to pay business rates for the 2020 to 2021 tax year. Additionally, any such businesses with a rateable value between £15,000 and £51,000 that operate from smaller premises will receive a £25,000 cash grant to ease the pressure of the crisis.
Furthermore the Government has also announced a three-month moratorium on commercial property landlords’ ability to exercise rights of forfeiture due to non-payment of rent by tenants. This will be a welcome relief for many hospitality businesses. However, it is going to be crucial for operators to obtain lasting relief from rental obligations and therefore negotiations with landlords continue with the hope that common sense prevails.
The Government’s new Coronavirus Business Interruption Loan scheme will also provide much needed liquidity for survival in the short term until other government support kicks in. This scheme will allow small businesses with a turnover of less than £45m to borrow up to £5m from banks, with an 80% loan guarantee provided by the government and the first 12-months interest-free. However, loans should be approached with caution – whilst they can provide some breathing room in the short term, they may not be appropriate longer-term as businesses struggle to keep on top of repayments. Furthermore operators are reporting difficulties in getting agreements in place quickly with their banks, and so it remains to be seen how effective the scheme will prove to be for many businesses, desperate an immediate short-term cash injection.
Therefore, whilst it is still possible, some businesses have been adapting their offerings so that they can maintain income through an alternative stream, such as takeaway or delivery. Pubs and craft breweries have allowed customers to bring containers for filling up with beer, or allowed them to purchase cases of wine bottles to takeaway. Similarly, restaurants have allowed customers to place food orders over the phone or online for collection. Given further closures and restrictions they may need to liaise with delivery platforms to ensure they are able to continue such offerings. Offering vouchers with up-front payment now for future redemption by customers when operations are back up and running is also proving popular.
Despite all of the doom and gloom faced by the hospitality sector, businesses need to be ready to get back to trading when normality returns. In the intervening period it will be crucial to maintain the goodwill of both staff and customers. The employment retention scheme is critical to keeping in place the teams in which operators have invested so much time and money in training and establishing a positive working culture. The continuity and engagement of those teams will be needed to get business back on track quickly. During the crisis, customers will also be looking at what local businesses are doing to provide support to the local community. When normality returns, a loyal and enthusiastic customer base, keen to resume their social lives, will ensure a positive re-start.
Owners and operators need to have a recovery strategy in place early. The challenge of modelling supply to meet demand will be more important than ever; it is important that stock is not over-ordered nor too many staff are taken out of furloughed status too early.
Similarly, businesses operating a large number of sites may need to consider whether they re-open all sites at the same time, and if this is a financially viable option. Alternatively, a few key sites may be prioritised to help stagger any teething issues with reopening.
These are unprecedented times, and the coronavirus crisis is continuing to escalate with severe implications upon the global economy. The UK’s hospitality sector may have been provided with some breathing room with the Government’s support measures. However, after riding out the initial storm, the challenge will ultimately switch to that of recovering effectively. Businesses that are capable of acting proactively and putting a clear recovery strategy in place will be able to get back on track once a sense of normality is restored.
haysmacintyre is an award-winning mid-tier firm of chartered accountants and tax advisers acting for over 130 clients within the hospitality sector. The firm uses its experience to highlight relevant opportunities and issues as they arise and communicates these to its clients.
Gareth Ogden is a Partner within the hospitality team and can be contacted at email@example.com.