The hospitality sector has long been one of the most competitive in the UK. However, it is also a trading environment exposed to fluctuations in demand, seasonality, changes in consumer spending behaviours, and an ever-shifting number of pressures around operating costs and tax exposure.
Coupled with an extended period of high interest, which has made borrowing more expensive, a large proportion of hospitality companies need to consider a broader range of funding solutions, ensuring they utilise financing that contributes to resilience and stability—rather than adding more strain to limited budgets.
The specialists in hospitality accountancy at James Todd & Co. clarify the elements that should go into decision-making and offer general guidance for hospitality business owners who are reviewing their options for borrowing, attracting investment, or sourcing alternative forms of financing.
How Hospitality Sector Accountants Analyse and Contrast Funding Solutions
We often speak with clients who need capital to finance major costs, such as investing in new commercial kitchens, paying for upgrades to their premises, or extending their services. Others might need to find the best ways to shore up gaps in cash flow during quieter periods when revenues are low.
In either scenario, we advise you to seek independent, unbiased, and professional support without prioritising speed and the amount of funding available over the cost of that financing and its longer-term impacts on your business.
It is common for hospitality businesses with stretched budgets and faced with rising operating costs to accept the very first loan they are offered, but in many cases, this may cost more than necessary, expose them to unwanted risk, or be less advantageous than alternative forms of financing.
Step one is to assess the bigger picture and understand the business, your trade, financial projections, and current position. That ensures we can work with you to understand the ideal structure and nature of funding and analyse the relevant options that may be of interest.
Examples of Financing Products for Hospitality Businesses
Many business owners are inclined to turn immediately to their usual commercial banking provider when they need an influx of cash. In some instances, a short-term loan with a competitive interest rate or a secured funding product that uses a high-value asset as collateral may be effective.
However, there is a risk of getting into a cycle of credit, where hospitality businesses spend most of the peak trading period paying back debt, plus interest, and then become reliant on further borrowing as soon as revenues slow down.
Short-term loans are accessible and usually straightforward to apply for but often provide a limited amount of borrowing and charge fairly high interest in return.
Other products we often discuss include commercial mortgages and development loans, both of which tend to carry lower charges and overall interest costs.
Of course, the difference is that a mortgage is secured against an owned premise and often has a little more flexibility around repayment terms. Development loans act as a staged funding-release product linked to a defined project such as a refurbishment.
Hospitality businesses might consider asset finance in preference to a loan, providing a way to spread the cost of buying new equipment over time. They could also potentially compare the variables between this and hire purchase, which may make larger outgoings easier to manage.
Depending on the purpose of financing, some businesses could benefit from looking at less conventional sources of funding, such as crowdfunding as a combined marketing and fundraising initiative, cash advances where loans are secured on future anticipated card-based sales or setting up a revolving credit facility they can tap into as and when required.
This is far from an exhaustive list but hopefully illustrates the vast number of different funding products and structures available—all of which must be carefully assessed to determine the total cost of borrowing and the suitability for the business.
Accessing Grants and Support Schemes Relevant to the Hospitality Sector
Finally, if you’re looking for sustainable ways to finance an expansion, help manage overheads and cash flows outside of peak periods, or invest in training, equipment, refurbishments or new appliances, it is worth consulting an experienced adviser to ensure you aren’t missing key opportunities.
Those could include grants and initiatives specifically designed for the sector, general schemes applicable to all businesses, or tax efficiencies.
While the range and relevance of options will depend on your business's nature and location, we've highlighted below a few examples of tax reliefs that are currently available.
Retail, Hospitality and Leisure Rates Relief
Qualifying businesses, including restaurants, pubs, bars, cafes, hotels, spas, gyms, and music venues, may be able to claim a 75% discount on their business rates. This discount is currently applicable to the billing year that runs until 31st March 2025.
While rate relief for hospitality sector businesses is capped at £110,000 per business, this could significantly impact overheads. Small business rates relief is also available for those with premises with a rateable value of under £15,000.
Claiming the Employment Allowance
The Employment Allowance enables SMEs to claim a reduction against their annual National Insurance obligations of up to £5,000. It is open to those with a Class 1 liability of under £100,000 in the most recent tax year, but where applicable, it can be claimed for up to the previous four years.
Tax Reliefs on Business Investments
Capital allowances are commonly underused. They offset investments made against taxable profits, including upgrades to premises, technology, and equipment.
Research and Development tax credits are also available, but they are often incorrectly assumed to be only suitable for technology companies.
Diverse forms of innovation, such as creating new recipes or standout guest experiences, may qualify for tax credits, as might developing more sustainable packaging options, for instance. As always, our specialist accountancy team can provide further advice about these tax efficiencies and any of the information discussed in this guide on demand.
If you’re keen to find expert advice about the right financing solutions for your hospitality business, need to compare the long-term costs and viability of alternative funding options, or want to discuss the ideal strategies to provide ongoing financial stability, please get in touch at your convenience.
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About James Todd & Co
James Todd & Co. have been providing accounting services for more than 30 years across Chichester, Fareham, and Portsmouth for businesses across the South East. Their clients trust them to provide bookkeeping, financial auditing and compliance, management accounting and financial advisory services.
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Source Company: https://www.jamestoddandco.co.uk/
Published by: Steve OBrien