How can companies in the food and drink industry avoid administration?

By Andrew Taylor

- Last updated on GMT

Andrew Taylor asks how food firms can avoid falling into administration
Andrew Taylor asks how food firms can avoid falling into administration

Related tags administration

Andrew Taylor, partner and head of restructuring at law firm Shakespeare Martineau, provides insight into how food and drink firms can avoid administration.

The food and drink industry accounted for 6 percent of administrations in the first six months of 2022, the sixth highest sector in the UK. 39 businesses including several breweries and restaurant chains filed for administration between the January 1 and June 30, marking a 60 percent increase compared to 2021. 

Administrations and insolvencies generally were suppressed during the pandemic due to the government’s introduction of supportive economic measures such as the Coronavirus Business Interruption Loan Scheme, Recovery Loan Scheme, and a wide-ranging prohibition on certain types of enforcement. 

Following the removal of these schemes and reduced forbearance by creditors such as HMRC, businesses in the industry have been feeling the impacts as we return to a ‘business as usual’ environment, and as a result, an increase in administrations and insolvencies had been seen. 

A multitude of economic and global issues have created an almost perfect storm for companies in the food and drink industry. Problems with supply chains and the ongoing war in Ukraine have caused a rise in the cost of raw materials such as flour, wheat and grain, putting an increased pressure on manufacturers in the UK.  

Acting proactively

This, combined with staffing issues and rising energy costs, have meant that both food manufacturers and businesses in the hospitality sector are suffering. With further economic issues such as rising prices and interest rates to contend with, it is vital that businesses are proactive in protecting themselves against these economic headwinds. 

With a potential recession on the horizon, along with rising interest rates and bills, the forecast for businesses in the food industry is worrying. The cost-of-living crisis has seen a sharp increase in the price of groceries on supermarket shelves, a surge that has resulted in most of the population being extremely cautious about what they are putting into their baskets.  

This decline in spending and reduced basket sizes has caused an increased pressure on supply chains and manufacturers as they face lower demands for stock. 

To ensure that businesses do not enter administration, it is vital that directors seek to manage their cashflow. To do this, directors should plan their cash runways and ensure they spot the problems before they reach a tipping point. Restructuring is a vital tool within a business’ armoury, evaluating finance and efficiencies, reviewing staffing levels and engaging with stakeholders are all key considerations. 

Back to basics

In times of economic crisis, re-examining the basics of a business is essential to moving forward. It is important that changes are made at the earliest possible stage, and receiving advice from professional services can help with the restructuring process and highlight any potential problems.  

With a rather bleak economic forecast ahead as we move into the winter, with rising energy costs and a potential recession looming, it is therefore vital that directors begin to look into options such as diversifying their business model as soon as possible.  

We saw this a lot during the pandemic as businesses moved to takeaway models, maintaining income whilst customer footfall was significantly reduced. 

Unfortunately, there are many businesses in a state of flux. For them to survive in the long-term and ensure they avoid insolvency, now is the time to act. Getting a grip on matters at the earliest possible juncture is the best possible method of prevention.  

There is no doubt that there is turbulence ahead, and this is particularly worrying for many businesses, but with the right advice from professionals, evaluating business models and acting fast, insolvency can be avoided. Bleak economic forecasts are hard to avoid, but businesses’ best chance to weather the storm will be if they act now. 

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