Hospitality has always been a demanding sector, but for many pubs, restaurants, hotels, cafés, bars, takeaways and event venues, the current trading environment feels particularly unforgiving.
Even strong, well-run hospitality businesses are being squeezed from all sides. Wage increases, employer National Insurance costs, business rates, food inflation, rent, utilities, supplier pressure and cautious consumer spending are all putting pressure on already tight margins.
UKHospitality warned that annual cost increases from April 2026 included £1.9 billion in wage costs, £1 billion in employer National Insurance contributions and £500 million in business rates, with many operators expecting to cut jobs, reduce trading hours or close sites as a result.
The insolvency figures show just how serious the situation has become. In 2025, there were 23,938 registered company insolvencies in England and Wales, including 18,525 creditors’ voluntary liquidations, 1,495 administrations and 186 company voluntary arrangements. Hospitality has been particularly exposed, with accommodation and food service businesses continuing to represent a significant share of insolvency cases.
For hospitality directors, this can feel deeply personal. You may be responsible for employees, suppliers, landlords, customers and a brand you have spent years building. When cash becomes tight, it is common to feel overwhelmed, but hospitality insolvency is not always inevitable. The earlier you act, the more options you are likely to have.
At McAlister & Co, our insolvency service in the UK helps hospitality business owners and directors assess their financial position, explore recovery options, and take proactive steps to avoid insolvency wherever possible.
Why Are So Many Hospitality Businesses Struggling?
Hospitality businesses often operate with high fixed costs and relatively low margins. A restaurant may still need to pay rent, utilities, insurance, staff, subscriptions and finance costs even when bookings are down. A hotel may have strong weekend occupancy but still struggle during quieter periods. A pub may be busy but unable to generate enough profit once wages, stock, rent and energy bills are paid.
Some of the most common causes of hospitality business debt include:
Rising employment costs are one of the biggest pressures. Hospitality is labour-intensive, and venues often need a minimum level of staffing to operate safely and provide good service, even during quieter shifts.
Food and drink costs can fluctuate quickly. If menu prices do not keep pace with supplier increases, gross margins can fall before directors realise the full impact.
Rent and business rates can be especially challenging for high street, city centre and destination venues. These costs are often fixed, which means they can become unsustainable if footfall falls.
Energy remains a major concern for businesses that rely on heating, refrigeration, cooking equipment, laundry facilities or late-night trading. In December 2025, hospitality businesses were far more likely than the wider business population to report energy prices as their top concern.
Cash flow can also become unpredictable. Seasonal trading, late payments from event clients, deposits being used to fund day-to-day costs, HMRC arrears and supplier credit reductions can all create pressure very quickly.
What Are the Warning Signs of Hospitality Insolvency?
Financial problems rarely appear overnight. In most cases, there are warning signs that a business is moving towards distress.
These include persistent cash flow problems, defaulting on bills, struggling to pay staff wages, high interest payments on loans or facilities, and falling margins. Other warning signs in hospitality businesses may include:
- Repeatedly delaying supplier payments
- Using VAT, PAYE or National Insurance funds to cover other costs
- Falling behind with rent or business rates
- Increasing reliance on overdrafts, credit cards or short-term lending
- Suppliers reducing credit terms or moving to cash on delivery
- Cancelled direct debits
- Mounting HMRC pressure
- Difficulty funding wages before a busy trading period
- Directors injecting personal funds without a clear recovery plan
However, spotting these signs does not mean the business is beyond saving. In fact, recognising them early gives you the best chance of stabilising your position and turning things around.
How to Take Back Control
Take Control of Cash Flow
Cash flow is the heartbeat of any hospitality business. You may have strong sales, loyal customers and a full diary, but if cash is leaving faster than it is coming in, the business can still become insolvent.
Start by preparing a rolling 13-week cash flow forecast. This should show expected income, rent, wages, supplier payments, HMRC liabilities, loan repayments, utilities, insurance and any seasonal fluctuations. Be realistic rather than optimistic. A clear forecast will show when action is needed.
Take a close look at cash flow to identify pressure points, make realistic projections and implement improvements. For hospitality businesses, this might mean reviewing booking deposits, tightening event payment terms, monitoring daily takings, improving stock control and making sure all income is reconciled quickly.
It is also important to separate tax liabilities from trading cash wherever possible. VAT, PAYE and National Insurance can build up quickly, and HMRC arrears can become one of the most serious threats to a business if left unresolved.
Review Costs Without Damaging the Business
Cutting costs is often necessary, but in hospitality it must be done carefully. Reducing spend too aggressively can damage service, morale, and customer experience, which may make the financial position worse.
Start with fixed costs. Review rent, service charges, insurance, subscriptions, waste contracts, cleaning contracts, telecoms, booking platforms and software costs. Consider whether any contracts can be renegotiated, paused or replaced.
Then review variable costs. Look at supplier pricing, menu profitability, portion control, wastage, stock theft, staff rotas, agency use and opening hours. Many venues discover that certain dishes, trading periods or services are busy but not profitable.
It’s also worth looking at if you can reduce operational costs by analysing fixed costs first and cutting unnecessary spending where possible. For multi-site hospitality businesses, it may also be necessary to identify underperforming sites; closing or restructuring one loss-making site can sometimes protect the wider business.
Speak to Creditors Early
When debts are mounting, it can be tempting to avoid difficult conversations and bury your head in the sand. However, silence often makes creditors more nervous and more likely to take enforcement action.
Speak to suppliers, landlords, lenders and HMRC as early as possible. Explain the position honestly, provide realistic proposals and avoid promising payments the business cannot afford. Many creditors would rather agree a repayment plan than push a business into insolvency, particularly where there is a credible recovery plan.
Informal repayment plans can be effective, although they are not legally binding and creditors can withdraw from them. This is why any informal agreement should be realistic, documented and supported by cash flow forecasts.
Consider an HMRC Time to Pay Arrangement
If your hospitality business has fallen behind with VAT, PAYE, National Insurance or corporation tax, an HMRC Time to Pay arrangement may provide breathing space.
A Time to Pay arrangement allows tax liabilities to be repaid over an agreed period, helping to reduce immediate pressure while the business stabilises. Eligibility usually depends on factors such as business viability, payment history, steady cash flow and a clear proposal showing how the debt will be repaid.
However, it’s important to remember that a Time to Pay arrangement is not a long-term solution if the business is continuing to trade at a loss. It should form part of a wider turnaround plan, not simply delay the problem.
Explore Funding and Refinancing Carefully
Some hospitality businesses need short-term working capital to get through a difficult period. Refinancing options may include invoice finance, asset refinance, stock finance, short-term lending, investor funding, or a director’s loan.
However, borrowing is only sensible if the business is viable and the repayments are affordable. Taking on new debt to fund ongoing losses can increase the risk to the company and, in some cases, to directors personally, particularly where personal guarantees are involved.
Build a Practical Business Rescue Plan
Once you understand the scale of the problem, the next step is to create a practical recovery plan. This should reflect the company’s true financial position and cover things such as your current debts and creditor pressure, realistic cash flow forecasts, supplier negotiations, HMRC arrears, funding requirements, turnaround targets, and contingency options if trading does not improve.
Above all, remember that for hospitality businesses, the plan must be practical. It should reflect real trading patterns, not just hopeful sales targets.
Formal Business Rescue Options
If informal action is not enough, formal restructuring or insolvency procedures may help protect the business, employees and creditors.
Company Voluntary Arrangement
A Company Voluntary Arrangement, or CVA, is a formal agreement between a company and its creditors. It essentially enables you to ring-fence your company, allowing you to continue trading while making affordable contributions towards your debts over an agreed period.
For hospitality businesses, a CVA may be suitable where the underlying business is viable but historic debt, rent arrears, HMRC liabilities or supplier balances have become unmanageable.
Administration
Administration can provide protection from creditor action while a rescue, restructuring or sale is explored. This may be appropriate where creditor pressure is immediate, legal action is underway, or there is a need to protect the business while options are assessed.
Pre-Pack Administration
If the business is viable but the company cannot survive in its current form, a pre-pack administration may be considered. Pre-pack administration can allow a struggling company to close down and restart without the debts, provided strict statutory requirements are met.
In hospitality, this may help preserve jobs, brand value, leases, bookings and customer goodwill. However, it must be handled properly by licensed insolvency practitioners.
Creditors’ Voluntary Liquidation
If the business cannot be rescued, a creditors’ voluntary liquidation may be the most appropriate way to close the company in an orderly manner, enabling you to deal with creditors, cancel leases, and tie up loose ends.
Liquidation is never an easy decision, but it can provide structure, clarity and protection where the business has reached the end of the road.
How McAlister & Co Can Help You Stay in Control
Hospitality business debt can be stressful, emotional and fast-moving. But you don’t have to deal with it alone.
At McAlister & Co, our licensed insolvency practitioners provide clear, practical and confidential advice to company directors, sole traders and partnerships. Whether you want to rescue a viable business, restructure debts, negotiate with creditors, deal with HMRC, protect employees, close a business properly or explore a restart, we will help you understand your options and take the right next step.
We can help you assess cash flow, identify warning signs, review creditor pressure, explore business rescue options and decide whether a CVA, administration, pre-pack administration, Time to Pay arrangement or liquidation is the most appropriate route.
The sooner you seek advice, the more options you are likely to have. If your hospitality business is struggling with debt, rising costs or creditor pressure, contact McAlister & Co today for confidential support and expert guidance from a trusted insolvency service in the UK.
