Opportunity for growth in Scotland’s hospitality sector, according to industry experts
Whilst the hospitality sector in Scotland is facing numerous challenges including increased costs, staffing issues, and changes in legislation, opportunities still remain for businesses to expand and thrive, according to leading financial experts.
The Cumberland Building Society, Harper Macleod LLP, EQ Accountants LLP, and Graham + Sibbald have joined forces to offer their insights for businesses in Scotland.
Multiple hospitality businesses have closed in Scotland in the last three years as a result of the pandemic and other headwinds. Experts suggest this will allow businesses surviving the challenging economic climate to make acquisitions at a more favourable price and maximise growth opportunities.
Jacqui Fraser, a partner in the banking and finance team at law firm Harper Macleod LLP, said: “Unfortunately there are an increasing number of business owners who are closing their premises as a result of increased costs, interest rates, staffing issues and general cost of living issues, including energy and rising food costs. This means that for hospitality business owners looking to expand, there are increasing numbers of businesses available to purchase at competitive prices.”
Peter Seymour, director, hotels & leisure at Graham + Sibbald added: “One of the major issues facing valuations are the long-term ramifications of inflation within the sector. Food and drink prices, utility costs, and staffing costs are all affecting the bottom-line profitability of hotels and leisure businesses.
“These ongoing issues mean that those businesses that are forced to sell up are showing less profits this year than last. This will affect the current financial year more than any other, so we have not yet seen businesses sell with the full effect of the reduced profit margins being reflected in price. It would be inevitable, if these pressures continue, that the pricing of assets will have to be cut.”
Whilst more than half (52%) of Scotland’s hospitality businesses are still in ‘survival mode’, according to findings from the Scottish Tourism Alliance, for those who are seeking to capitalise on these industry losses, Scott Greig, Partner and Head of EQ Leisure at EQ Accountants, urges businesses to be fully prepared before embarking on expansion plans.
Scott said: “Unfortunately, not every deal results in a positive outcome. More often than not, it is down to not undertaking sufficient due diligence ahead of making an offer or not bringing in the appropriate advisors early enough to help structure the deal in the best way.
“Banks and building societies require more information than ever before, including non-financial information, depending on the size of the deal. Some business owners may be reluctant to pay fees for advice upfront and this can be more costly in the long term if deals need to be subsequently restructured.”
Alasdair Swan, senior commercial manager at specialist hospitality lenders, The Cumberland Building Society, echoes Scott’s sentiments. He said: “There are a great deal of opportunities out there for businesses to capitalise on, however they need to ensure that they have consulted relevant advisors before embarking on any significant expansions.
“The Cumberland is well positioned to help businesses achieve their ambitions, thanks to our commitment to supporting the hospitality sector, especially in Scotland. Our relationship-managed approach to banking means that, from day one, our relationship managers take the time to get to know you and your business, and our manual underwriting process ensures that every mortgage application is considered by a real person, not a computer.”
As operators continue to face trying times, The Cumberland has stepped up its commitment to its customers, investing over £45m into the Scottish hospitality and tourism sector over the past two years alone.
Whilst the hospitality sector continues to face challenging times, business owners within the sector should not be put off from exploring how they can expand and grow their business. As discussed above, those who take the due diligence to create an effective expansion plan can avoid potential pitfalls and thrive moving forward.