How can you protect your café business from insolvency?

How can you protect your café business from insolvency?

With the UK once again teetering on the brink of recession, thousands of businesses are facing some potentially difficult decisions. One in 228 active companies entered liquidation between 1 July 2021 and 30 June 2022. As financial constraints tighten even further, insolvency poses a very real threat to many more SMBs (small to medium-sized businesses). For cafés and other small eateries, this means some tough calls need to be made, argues Louis Carbonnier of Hokodo.

Louis Carbonnier is the co-founder and co-CEO of Hokodo where he leads the commercial and product functions. Hokodo is a fintech startup that enables B2B merchants and marketplaces to offer a Buy Now, Pay Later solution to their customers.

FIVE STEPS CAFÉS CAN TAKE TO HELP RECESSION-PROOF THEIR BUSINESS

While in previous recessions customers have not abandoned the hospitality industry entirely, cafés have typically experienced reduced footfall and lower customer spending. With increased overheads, largely driven by the global energy crisis and the soaring cost of living, many café owners will be struggling to know what to do next.

So, what can you do to help protect your café business from insolvency as the UK moves into a recession that is predicted to last beyond the first quarter of 2023?

Take action to reduce your debt

The lower your overheads are, the lower your outgoings will be when the impact of the recession hits hardest. So, although clearing major debts now might mean tightening your belt earlier, it can give you that little bit of extra breathing space when everyone else is struggling. Look at your biggest debts – and those with the highest interest rates – and work out if you can increase your payments and clear what you owe more quickly. Consolidation can also be a good way to manage debts.

Build your customer base

When your existing customer base is spending less money, it is integral that you find ways to attract new customers. However, this may be more easily said than done. It’s a good idea to start by improving your customer experience. Make sure that your café is spotlessly clean. Focus on comfort. Ensure that your food and beverages are of the highest possible standard – this doesn’t mean using more expensive ingredients, but focusing on quality, presentation, and flavour. Consider initiating a loyalty scheme or running special offers on your quietest day of the week.

Reassess your suppliers

Once you’ve found a supplier you’re happy working with, it can feel like too much effort to regularly check out the competition. But if you take the time to shop around now, while you might not find a supplier that is significantly cheaper, you may find one that offers better payment terms, particularly for larger equipment purchases. While it’s a good idea to reduce high interest debts, making new purchases on low or no interest deferred payment plans, such as trade credit or B2B Buy Now, Pay Later (BNPL), can be a great way to access the goods you need while protecting your cash flow.

Advertise wisely

Advertising no longer needs to be enormously expensive. If you use social media well, it’s possible to reach a significant customer base without eating into your budget. So, get on to Facebook, Twitter, TikTok, and Instagram. Join your local community groups. Shout out about what you have to offer. Post images of your most mouth-watering cakes and tempting coffees. Let your neighbourhood know about your special offers. Introduce them to your business and your team. By engaging with your community, you can spark interest and build loyalty, so when people do have a little cash to spend on a treat, it’s your business that they’ll spend it with.

Talk to your team

The quality of your service and your menu hinges hugely on the quality of your staff. With the cost of living increasing, there’s a high likelihood that some of your team will begin to question their salary. If you’re not going to be in a position to increase wages, it’s a good idea to pre-empt requests by talking to your team in advance. Explain the situation to them. Tell them how much you value their work. If you can, show them with a small gesture. And make it clear that while you can’t increase their wages now, you will do so as soon as you are able. Having your team on your side is one of the most important ways to protect your business from insolvency during a recession.

IN CONCLUSION

Riding through the fluctuations of the economy is part and parcel of running a business. Recessions are difficult to deal with, and there will be businesses that simply can’t hold on until we reach the other side. But by taking measures to ameliorate the pressures of the coming months now, you are giving your café business the best possible chance of coming out the other side. Although few businesses will remain untouched by the recession, you’ll at least be well-positioned to rebuild as the economy begins to recover.