New report suggests 12% of all UK restaurants face insolvency
Research undertaken by accountancy firm Price Bailey has found that more than one in 10 (12%) restaurants are at imminent risk of closure, a result of declining consumer confidence and ongoing inflation.
According to Price Bailey, its team analysed the credit risk scores and balance sheet information of all 50,900 British restaurants. It found that 10,388 (20% of the total) have negative net assets on their balance sheets.
“These businesses are vulnerable to going bust (cash flow insolvent), which occurs when businesses are unable to make payments to suppliers or lenders,” said a representative from Price Bailey.
Of those 10,388 restaurants regarded as “technically insolvent” by the firm, 6,128 have a “Delphi Risk score in the Maximum Risk category (12% of the total population of 50,900 restaurants)”.
This is an increase of 1,172 compared to November 2023, when 4,956 restaurants were classed as both technically insolvent and in the Maximum credit risk category, representing 10 percent of UK restaurants.
The report stated: “Businesses deemed Maximum Risk find it difficult to access funding without personal guarantees from directors and are highly likely to be subject to winding up petitions or intention to dissolve notices in the next 12 months.
“Restaurant closures are currently running at their highest level in over a decade, smashing the previous decade-high total set only a year previously. 1,409 UK restaurant businesses entered insolvency in 2023/24 (year ending 30 September 2024), up from 1,180 in 2022/23, beating the previous decade-high total by 19%.”
Matt Howard, head of the insolvency and recovery team at Price Bailey, commented: “Unlike most other sectors of the economy, insolvencies in the hospitality sector are still rising. There has been a sharp rise in restaurants entering insolvency over the last six months and the sector’s woes look set to continue.”
He added: “More than one in 10 restaurants are technically insolvent with maximum credit risk scores, which means that roughly half of them will close in the next 12 months. These businesses will find it almost impossible to access extra funding unless the owners provide personal guarantees, which few are likely to do in the current climate.
“Uncertainty in the run-up to the Budget dented consumer confidence just when the sector was starting to feel the benefit of lower interest rates. The sharp acceleration in inflation in October may well delay further rate cuts and will act as a drag on restaurants as we approach their busiest time of the year.”
A growing number of hospitality businesses are voicing their grave concerns about Rachel Reeves' inaugural budget.
Owen Morgan, co-founder of Bar 44, told Harpers that “we have spent the last few weeks literally spending 24/7 trying to evaluate, forecast, adjust and plan, how to save the business, because of the government budget".
Describing the pressures on his company as “heart breaking”, Owen added that due to the increases in NI and National Living Wage, he needed to find (in terms of cuts and revenue generated) "£700,000 just to stand still".
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