Corporate insolvency statistics for the third quarter (July to September) of 2015 make good reading for the vast majority of industry sectors, with the number of company insolvencies in England and Wales continuing to fall. An estimated total of 3,539 companies entered insolvency in Q3, 4.4 percent less than Q2 of 2015, and 10.2 percent lower than Q3 2014.
Great news then for UK businesses on the whole, but unfortunately there are a couple of sectors that continue to suffer. Despite the upturn, restaurants and care homes face an increased risk of insolvency, with hundreds of care homes on the brink of financial disaster, and restaurant failure rates up 20 percent in the last year alone.
Restaurants are feeling the bite
The insolvency statistics show that the number of restaurants closing and needing rescuing from insolvency last year was 50 percent higher than in the depths of the recession. 1,294 restaurants became insolvent in 2014/15, up from 865 in 2009/10. There was also a rise in restaurant failure rates of 20 percent in the last year alone, up from 1,082 in 2013/14.
You’d think increased spending power and consumer confidence would provide the fertile grounds restaurants needed to survive and grow, but increasing competition from ‘pop-up’ restaurants and a rise in the number of restaurateurs opening new businesses has created a challenging market. Rising rents are also thought to have taken their toll.
Innovative new formats leave old restaurants for dead
Although consumer spending on eating out has increased markedly in the last year, the competition for that spend has grown at an even faster rate. An influx of innovative new food and restaurant concepts in the sector is leaving some older formats for dead.
However, there’s also a high failure rate among new business. The recovering economy is encouraging more and more people to ‘have a go’, but the inexperienced continue to struggle in this competitive market. Mobile food businesses and pop-ups might be all the rage, but they still attract high costs, which many business owners are failing to account for.
Care homes in crisis
Insolvency experts believe close to a third of care homes are currently in financial crisis, with as many as 1,650 of the UK’s 5,500 care home companies struggling financially. Of those, it is thought that a quarter, or some 400, are in real danger of requiring formal rescue, or simply liquidating.
The majority of the problems are being caused by care homes that are struggling to meet the interest payments on their debts due to the rising costs of staff and cuts in local authority fees.
The UK’s largest care home operator, Four Seasons Health Care, which has 470 homes across the UK and more than 20,000 beds, was the subject of a warning from credit rating agency Standard & Poor that it could soon run out of cash.
The current model is unsustainable
Government austerity measures have made the current models of many businesses in the sector completely unsustainable as they hardly make a profit. Labour and other costs are rising all the time, and many of these costs are completely out of the control of the care homes themselves.
These financial struggles could cause a major crisis in the industry. The number of care homes under the threat of closure is growing, but the demand for beds with an aging population is also on the up. The result could be catastrophic for the healthcare sector and some of the most vulnerable members of our society.
If you have an insolvent care home or restaurant and you are unsure what to do next, or you simply want to close it or rescue your business call 08000 746 757; Or email [email protected] or get immediate help in Zopim Live Support at the bottom on the right hand side.
Written by: Mike Smith