With UK hospitality insolvencies running higher than pre-pandemic levels, operators need more than steady demand to protect cash flow, margins and long-term viability. Oliver Collinge, Advisory Partner at PKF, explains why early restructuring advice, disciplined cash flow forecasting and decisive cost control can help hotels, restaurants and leisure businesses respond before financial pressure becomes a crisis.
Why UK hospitality insolvencies remain a risk despite steady demand
On current run-rates, around 3,400 hospitality businesses are failing each year, despite steady levels of demand in the market. Although trading levels are relatively stable, margin and cash flow continue to be under severe pressure across much of the sector.
The pressures facing hospitality businesses are well understood — price inflation, rising labour costs, higher interest rates and more cautious consumer behaviour. What separates winners and losers is the ability of a business to respond to these pressures.
Customers are still spending, but it’s less predictable than it used to be: booking windows are shorter, customer behaviour is more reactive, and pricing sensitivity is higher. At the same time, the cost base has expanded. Wage increases, elevated input costs and higher debt service mean margins are tighter, even though topline trading might appear stable.
In this environment, banking on an improvement in macro-economic conditions is a risky strategy. Tight operational controls and an innovative approach to revenue and cost management are essential survival skills for operators.
What rising hospitality insolvencies mean for operators
What we’re seeing in practice is that insolvency is often not the result of a single shock event, but rather the attritional pressures in the market: the cumulative effect of margin erosion, working capital pressure, over-leverage and reduced headroom with lenders can eventually become too much to bear.
Insolvencies across accommodation and food services are running at around 3,400–3,500 cases annually, equating to almost 300 per month. That level is high relative to pre-pandemic norms and reflects a sustained period of pressure for the sector.
By the time formal insolvency options are considered, businesses have usually been under significant pressure for some time. Formal processes can be effective in preserving value — for example, recent sales of Lumley Castle Hotel and the Feversham Arms Hotel to better-capitalised operators — but they are still far better avoided.
Distressed operators who have managed to avoid insolvency usually do so because of early intervention and a focus on the following areas:
Five practical priorities to protect hospitality cash flow
1. Cash discipline over profit: Short-term liquidity is critical. Robust, rolling cash flow forecasting allows crunch points to be identified and proactively managed.
2. Cost controls: Cost bases which evolved in a more benign trading environment are often no longer sustainable. Fundamental change is often needed, including staffing models, supplier arrangements and site-level viability.
3. Active revenue management: Many operators already use algorithm-driven pricing tools to track market demand and competitor behaviour. In softer markets these systems can maintain occupancy, but this can come at the expense of contribution, particularly once discounting and Online Travel Agency (“OTA”) costs are factored in. They cannot be relied upon exclusively: filling rooms is less important than protecting margin and where that principle is missing, superficially stable trading can mask underlying cash pressures.
4. Early stakeholder engagement: Lenders, landlords and HMRC are much more likely to support businesses that engage early, provide clear information and present credible plans. Putting off difficult conversations with stakeholders almost invariably limits options and leads to worse outcomes.
5. Realistic strategic decisions: Not all sites or formats will be viable in the current environment. Identifying underperforming areas and acting decisively is often necessary to protect overall value.
In the current market these measures are essential to combat difficult trading conditions. Where action is delayed, deterioration can be rapid, with cash burn accelerating and options narrowing.
How early restructuring advice can help hospitality businesses
Restructuring advice should not be viewed purely as a precursor to insolvency. Introduced early we can provide hands-on support in stabilising cash flow, negotiating with stakeholders, improving performance and ultimately preserving value.
Our experience across hospitality engagements consistently shows that early advice facilitates the widest possible range of outcomes, from informal turnaround through to consensual restructuring or formal processes used to protect the business while a sale or reorganisation is implemented.
Businesses that act while they retain control over the process will always achieve better outcomes than those who are already in the throes of a full-blown cash crisis.
What this means for hospitality businesses in 2026
For hospitality operators, the message is clear: demand alone is unlikely to offset sustained pressure on margins, working capital and funding headroom. Businesses that maintain tight cash flow controls, challenge their cost base, make realistic site-level decisions and seek early restructuring advice will be best placed to protect value and avoid financial distress.
For further guidance on any issues raised in this article, please contact Oliver Collinge.
