Why you should think of business restructuring like a visit to the doctor: Oliver Collinge

Hospitality is a vital part of the Yorkshire economy, comprising over 16,000 businesses with combined revenues of more than £6 billion thanks to the region’s many rural tourist destinations and major commercial centres. But many in the sector are feeling the strain. We have recently been involved in two separate restructuring projects advising well-known hotels in the region.

Both had seen margins relentlessly squeezed for years through a combination of ever-higher staff costs (particularly via minimum wage and National Insurance rises), rising utilities costs and food and beverage price inflation. In turn these tight margins constrained cash flow, leaving limited funding for investment and maintenance, making it harder to sustain occupancy levels in a highly competitive market.

In both cases, working with the businesses and their investors we managed to achieve sales to larger, better capitalised operators. Whilst HMRC, lenders and suppliers did not recover everything they were owed, the businesses were saved along with the many jobs which they sustain.

Both were given a new lease of life where they might otherwise have gone to the wall.

Cost pressures are also weighing heavily on the transport sector. Yorkshire is a key hub for haulage and logistics, employing over 100,000 people in the region and generating revenues of more than £20 billion. Fuel cost rises – stoked by the Iran conflict – are the latest pain point, compounding substantial increases in finance costs and driver pay in recent years.

Like hospitality, weak consumer confidence in the wider economy has also led to flat demand, squeezing margins from both directions. So, it is no surprise we have found ourselves acting for several transport sector clients recently.

We have worked alongside them to secure either enhanced working capital facilities or a repayment programme with HMRC to create breathing space. In turn, this has enabled the management teams to step back from day-to-day firefighting and concentrate on strategic and operational changes, allowing them to return to profitability.

People tend to think of restructuring advice as the corporate equivalent of a visit to an undertaker, but a better analogy is an appointment with the doctor (at least to me, as someone who has worked in the business restructuring industry for a couple of decades). The earlier you take advice on your symptoms, the less likely you are to need major treatment.

Given time, there are often multiple options to avoid worst case outcomes - whether through refinancing, negotiating extended terms with suppliers, or agreeing forbearance from lenders and HMRC as part of a turnaround plan. Even if a formal insolvency process is required, businesses and jobs can frequently be preserved.

In all these examples, tough choices had to be made, and the solution is never simple or pain free.

But with honest discussions, decisive actions and a resilient mindset, challenges can be overcome and businesses rescued and renewed.

Whilst Yorkshire folk are known for their stoicism, it should be recognised that asking for support is not a sign of failure but rather the first step towards a potential solution. While that does not make the decision any easier, it is often better to take it sooner while there are still a range of potential options to consider.

Oliver Collinge is a partner at PKF Littlejohn