It’s vital operators keep a close eye on the financial health of their business, writes Wylie & Bisset partner Catherine Livingstone
With Scotland having moved to the lowest level of Covid restrictions as it continues on its roadmap out of lockdown, with up to ten people able to meet in a pub or restaurant with no need to pre-book a two-hour slot, though with venues required to close at midnight, the public will hopefully be reassured that it is now safe to return to bars and restaurants.
But while hospitality sector operators will be delighted to be back up and running – with the notable exception of nightclubs – it is important that, while they hopefully enjoy a busy and profitable summer period, they keep one eye on the financial health of their outlets over the medium-term.
That’s because many operators have accrued significant debts over the last 18 months as they have struggled to keep their operations afloat, while the imminent culmination of the furlough scheme is set to heap further financial pressure on their ability to service these debts.
I know of several licensees concerned about their ability to pay staff wages because, while they are busy with customers and currently bringing in more money that expenses, they are acutely conscious that repayments will soon need to be made for bounce back loans and the VAT they deferred.
And as the autumn and winter months approach, when trading levels are traditionally lower than the busy summer months, such licensees need to ask themselves if their operations are going to be viable in the longer-term, given the levels of debts they need to manage.
Cashflows might seem perfectly adequate to licensees only now able to operate with more freedom as COVID restrictions relax at the present time, but that may be due to the fact that they have deferred their VAT bills and have money in the bank because they have taken out bounce back loans.
The difficulties faced by the hospitality sector have not been resolved overnight by consumers flocking back to bars and restaurants to enjoy their rediscovered freedom. Sadly, significant problems lie ahead for operators – not least of which is staffing, with the requirement for many staff to self-isolate if a colleague tests positive leading to a considerable logistical challenge for operators to navigate.
The looming crunch point for many operators will be when the furlough scheme comes to an end in a few months’ time. That makes now the ideal time to start giving some serious thought to cashflow projections.
Cash management is critical, and I would urge operators to start thinking about the longer-term financial health of their operations beyond the hopefully busy summer months as a matter of urgency.
- Catherine Livingstone is a partner and head of the business advisory services team at Wylie & Bisset