The UK hotel sector continues to face intense financial pressure. Rising labour and energy costs, interest rate volatility and changing travel behaviours have left many hotel owners struggling to maintain profitability - even with healthy occupancy. And there are further headwinds on the horizon.
Higher business rates and tourist tax
The Valuation Office Agency’s latest revaluation will result in sharp increases to business rates from April 2026, while The Employment Rights Act 2025 will reduce workforce flexibility (affecting zero-hour contracts, variable rotas and short-notice staff adjustments) and reduce the unfair dismissal qualifying period to six months from 1 January 2027.
Another administration task to be undertaken by hotels for no direct benefit is the proposed introduction of tourism taxes. The Government has consulted on the introduction of local overnight visitor levies by mayoral authorities appearing as a separate item on guests’ bills.
With increasing financial pressure, hotel owners must be willing to think out of the box and obtain the necessary professional advice to navigate these hurdles.
Steps hotel owners can take to survive in uncertain times
Below are eight key areas you must get right to restore control, protect cash and rebuild profitability, to survive in these testing times.
1. Restoring control of cash flow
Many hotel businesses don’t fail because they’re unprofitable on paper, but because they run out of cash. Our hospitality specialists at Armstrong Watson see cash visibility as the number one concern of hotel clients.
You can plan your working capital needs by building (and keeping up to date) a rolling 12-month cash flow forecast that reflects seasonality, VAT payments, loan repayments, and quieter periods.
Identify cash leaks with a structured review. This might highlight: supplier contracts that have drifted above market rates, an over-reliance on online travel agent commission, overstaffing in low periods, and poor stock and food cost controls.
Finally, create a survival buffer through an agreed overdraft or short-term funding options, so you have access to emergency cash reserves.
2. Review profitability by department
Many hotels appear busy but still lose money. By breaking down performance by department – rooms, food and beverage, events/functions, spa/leisure, ancillary services – this could reveal restaurants are loss-making, room rates don’t cover true margins and/or that specific services drain resources.
3. Restructuring debt before it becomes a crisis
With many hotels still carrying post-pandemic borrowing, debt pressure is a major issue. You could: explore refinancing expensive loans to reduce interest and improve monthly cash flow, restructure repayments to align them with seasonal revenue patterns, and negotiate with lenders early, before arrears or covenant breaches occur.
You might also consider alternative funding options, including asset-based lending, government schemes, or investor partnership, that reduce the cost of capital or release working cash without compromising control.
4. Tightening cost control without harming guest experience
Struggling hotels often cut costs blindly, which is risky and can damage service and reputation. Instead, focus on smart cost control such as:
Labour - align to forecasted occupancy and event demand, while considering cross-training staff
Procurement – consolidate suppliers, renegotiate terms and use bulk purchasing where appropriate
Energy and waste - make efficiency investments and tighten controls around waste reduction in food and utilities
Automation – use technology to reduce admin tasks allowing staff to focus on guests and revenue
5. Modernise pricing strategy and revenue management
Many independent hotels still rely on outdated fixed pricing. The focus should be on improving profitability, not just higher occupancy rates.
You can consider moving to dynamic pricing aligned to demand curves and events, and establish a minimum viable room rate that protects margins after commissions and costs.
By growing direct bookings with add-ons and offers, you will also reduce dependency on online travel agents. You might also look to identify upsell opportunities such as premium room packages, experiences, midweek corporate offers and extended stay rates.
6. Strategic business restructuring
In some cases, survival requires bigger changes to create a leaner business model built for modern demand.
Options might include:
Repositioning the hotel (luxury, boutique, budget, extended stay)
Closing or outsourcing unprofitable operations
Converting spaces to co-working, events, or long-stay accommodation
Sale-and-leaseback of assets to release capital
Joint ventures or partial equity investment
7. Tax planning for hospitality and compliance optimisation
Hospitality businesses often overpay tax or miss reliefs. You should look to review VAT planning and reclaim optimisation, claim capital allowances on refurbishments and energy upgrades, and assess business rates mitigation strategies ahead of the revaluation impact due to hit in 2026.
Specialist advice can assist with the above and also with structuring director remuneration efficiently, ensuring compliance to avoid unexpected tax liabilities.
8. Creating a long-term financial resilience plan
Beyond short-term recovery, it is essential to build resilience with a long-term plan that prioritises profit reinvestment strategies, includes emergency contingency planning, and considers growth funding pathways and the succession of the business. This shifts owners from “survival mode” into sustainable growth.
Don’t wait to seek specialist advice
You are not alone. And while you may not be in a current financial or trading crisis, but instead seeking reassurance, clarity and direction, early action makes the biggest difference. Speaking to a professional adviser now can help you understand your options and navigate a path from survival to sustainable growth.
No business owner should wait until they believe there is no future. Reaching out early could be the step that changes everything.
If you would like support, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
