Financial challenges facing pub and bar sector as Covid supports cease

In an article from the latest issue of Licensing World magazine, Crowe corporate restructuring and insolvency director Declan Hanly provides a comprehensive overview of the financing and cash flow challenges the bar and pub industry face over the coming months with the cessation of COVID-19 supports. 

After spending much of the last two years closed, it is safe to say that pubs and bars have endured more hardship than most businesses during the pandemic. With the reopening of the sector at the end of January 2022, most pub and bar owners are very much looking forward to the prospect of putting the pandemic behind them. In many cases however, it is not as simple as reopening the doors and getting back to normal trading. There are several challenges facing the sector such as the cessation of government supports, the repayment of warehoused taxes, management of cash flow and sourcing appropriate finance. 

Cessation of Supports 

In January 2022, the government announced an extension to the Employment Wage Subsidy Scheme (EWSS) and updates to the COVID Restrictions Support Scheme (CRSS) and Tax Debt Warehousing Scheme. However, these supports are soon coming to an end.

EWSS
Businesses in the pub and bar sector continued to receive the enhanced rates of subsidy for the month of February and the graduated step-down in subsidy rates has been extended by one month, to 31 May 2022. Under these arrangements, the EWSS will revert to the original two-rate subsidy (€151.50 and €203) on 1 March 2022, followed by a flat rate subsidy of €100 in April and May 2022. 

It should also be noted that the full rate of Employers’ PRSI has been reinstated with effect from 1 March 2022 for all businesses. 

CRSS
With the removal of public health restrictions from 22 January 2022, businesses can no longer apply for the CRSS. 

Tax Warehousing 
For businesses eligible for COVID-19 support schemes, the period during which taxes may be warehoused was extended to 30 April 2022, with these taxes being ‘parked’ interest-free for the following 12 months. At that point the warehoused debt may be paid in full without incurring an interest charge or can be paid through a phased payment arrangement from 1 May 2023. The Revenue Commissioners have confirmed that any phased payment arrangements will take account of the business’s particular financial circumstances and can be extended over a longer timeframe as required, provided current taxes continue to be paid as they fall due.

In summary, while these supports have been successful in maintaining businesses in the pub and bar sector during this pandemic, they will all have ceased by the end of May 2022. 

Furthermore, additional financial planning will need to be put in place from 1 May 2023 when you may be required to repay warehoused taxes in addition to ensuring current taxes are paid up to date. In addition, businesses are no longer able to warehouse their taxes as of 1 May 2022. It is important that businesses keep up to date with their current taxes thereafter, as your history of compliance with current taxes will form part of your negotiations with the Revenue when it comes to repaying your warehoused tax. 

Financing 

Due to the cessation of COVID supports, many businesses may need to source finance in order to fund operations while the business is re-establishing itself after the pandemic. There may be a requirement for working capital loans, short-term loans, overdrafts, asset finance, long-term loans etc. There are several options available to businesses who may need finance.

COVID-19 Credit Guarantee Scheme 
This scheme remains in place until 30 June 2022 and provides loans from €10,000 to €1m for terms up to five and a half years. The size of the loan is linked to business turnover (25% of 2019 turnover) or wage costs (double annual wage bill in 2019). The scheme is operated by the Strategic Banking Corporation of Ireland (SBCI) through participating lenders. 

COVID-19 Business Loans 
Loans up to €25,000 are available through Microfinance Ireland (MFI). The loan is open to sole traders, partnerships and limited companies with fewer than 10 full-time employees and annual turnover of up to €2m. 

Pillar Banks
In addition to the COVID-19 support loans mentioned above, the main pillar banks in Ireland (BOI, AIB, PTSB) all offer a range of products designed to assist businesses, including business loans, overdrafts, asset finance, insurance premium finance, etc. Finance products from these banks may often provide the best terms, but they also often carry more stringent lending criteria. 

Alternative Lenders
If you are unable to obtain finance from one of the pillar banks, or don’t wish to, there are several alternative (or non-bank) lenders in the Irish market who provide similar products and services. In certain circumstances these lenders may have different lending criteria which means you will qualify for the finance product required, but there may be an additional price to pay for this, e.g. higher interest rate, more onerous covenants, additional security/collateral etc. 

Cash Flow Management

Managing cash flow is about thinking ahead to ensure you can sustain a positive cash position, thus enabling you to pay your bills on time and avoid building up unsustainable debts. Below are three ways you can try improving your cash flow. 

Customer Credit
Avoid building up any receivables in the business. Receivables represent money that is owed to you; therefore you should avoid giving customers credit or bar tabs. If you do need to offer credit to your customers, you should aim to have strict credit terms and ensure payment is received quickly.

Supplier Credit
In contrast, you should try and negotiate extended credit terms from your suppliers. Additional credit terms with your suppliers will allow sufficient time for cash to be generated to meet the repayments when they fall due. If you are not in a position to agree extended credit terms, you should seek to order less stock but more often. This will ease the pressure on cash flow.

Seasonality
There are different levels of seasonality within the pub and bar sector, depending on where your premises is located. If you are subject to varying levels of seasonality you must prepare for lean periods. During these lean periods, it is likely that the business will generate less cash than you are required to pay out. You need to plan for these periods in particular and need to carefully monitor cash flows to ensure there is sufficient cash available to maintain trade. It may be that additional resources such as an overdraft or short-term loan are need for these periods. 

In summary, while we are hopefully reaching the end of the pandemic and the end of restrictions, there are still many pitfalls ahead for the pub and bar sector. If you find your business is facing financial issues following the re-opening of the sector, it is advisable to seek early advice from a finance professional. There are many options available to businesses at the early stages of difficulty, while these options diminish if you leave it too late to seek advice. 

If you or your hospitality business have been negatively impacted by the pandemic and need financial, operational and strategic support, please do not hesitate to contact our restructuring and insolvency team for a confidential consultation.