According to research by accountancy group UHY Hacker Young, 15 of the top 20 UK restaurant companies do not have enough cash to cover their debts falling due in the next year.
An analysis of the short term liabilities and assets of the UK’s top 20 restaurant companies reveals that, on average, they have just 74% of the cash (or other easily realisable assets) they need to pay the debts that fall due in the next 12 months.
UHY Hacker Young said in order to pay the debts falling due, restaurants will be forced to either roll over their debts, raise more capital from shareholders to pay down the debt, sell or sharply increase their cash generation.
The ability to pay 100% of short term debts out of cash and other short term assets is considered “financially healthy”.
The risk in trying to roll over debts is the failure of restaurant companies – like the Jamie Oliver Restaurant Group – leads some lenders to be reluctant to continue to extend credit to the sector.
UHY Hacker Young added that the lack of cash to cover upcoming debts reflected the “intense financial pressures” on the restaurant sector. Very few major UK restaurant companies have been able to reduce their costs fast enough to deal with slowing growth. Brexit and interest rate rises have slowed consumer spending in the sector and a glut of new restaurant openings in the last decade has “cannibalised” sales.
Peter Kubik, partner at UHY Hacker Young, said: “Cash is drying up amongst the top 20 UK restaurants who now only have 74p for every £1 they owe to creditors. There is plenty that these companies can do to sort out that short term cash shortfall, but they will need to act early and take some tough decisions.”
UHY Hacker Young added that some restaurants were implementing restructuring plans in order to improve profitability which could incur even bigger cash costs in the short term. For example, this includes the costs of making employees redundant and exiting lease agreements early.
Examples of high-profile restaurant chains that have experienced financial difficulties include:
- Jamie Oliver Restaurant Group, went into administration in May 2019
- Prezzo, the Italian pizza chain announced in 2018 that it would be closing 93 of its restaurants and cutting 1,000 jobs
- Carluccio’s The Italian restaurant group closed 35 restaurants as part of a company voluntary agreement in 2018 affecting 500 jobs
Recent research by UHY Hacker Young revealed that the top 100 UK restaurants made an £82m loss in the last year, down from a pre-tax profit of £102m 12 months ago.