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Comment: There will always be investors for travel firms

Access to finance is available, says Rob Insall, partner at Begbies Traynor

The travel industry has had more than its fair share of challenges as a result of the Covid-19 pandemic with rapidly-changing rules across countries and states, restrictions, testing regimes, liquidity challenges facing many businesses and even a few high profile insolvencies.

But just because the world of travel stopped turning for much of 2021 it shouldn’t mean the industry had to. When everyone else screeches to halt, the best businesses should be looking to how they can pivot in new directions. And contrary to what many may think, access to finance is available to do just that.

When we released our Red Flag Alert for the second quarter of the year, there was a glimmer of optimism. The numbers of travel and tourism businesses in significant distress had decreased by 8% during Q2 of 2021. While this meant that year on year numbers were still up by 26%, it did show that some businesses had been able to pay down some of the debts accumulated over the year.

But there are other causes for optimism. Perhaps not just in the present, but in the future if the right steps are made.

Staycations here to stay

Research from payments company Square has shown that 45% of consumers will be looking to staycations in 2022 and beyond.

While this isn’t great news for airlines and overseas bookings, it does mean there is an opportunity for UK tourism.

The challenge for these locations is to create an experience that makes people want to return, and with the UK high street and hospitality venues looking to make up for lost revenue, there is opportunity to collaborate.

Investment sentiment remains strong

In the future, as the vaccine begins to spread across the world and the globe starts to live with the virus, people will take holidays abroad and the industry will revive. No one doubts the pent-up demand. It is because of this potential for regrowth and strong demand that there will always be investors willing to take an educated risk on the industry to ride the recovery.

For a few years, even during the uncertainty created during Brexit, there has been finance available. The only issue has ever been making the profit to return on the investment or make payments on a loan.

Today is no different. Investment sentiment remains strong and could, for some, be the ideal answer to help travel firms bounce back strongly. And it is not just the cash of investors that is available. Their expertise is too, which could mean that while objective advice from outside is given on the finances and strategic opportunities you can get back to what you do best – delivering the holidays people want.

According to figures from Ernest Wilson (part of Begbies Traynor Group), an expert in selling businesses across all sectors, including the high street, investors are continuing to back solid, well-run and viable businesses that have suffered due to the pandemic.

On average, the final sale of a high street business achieved 13% higher than the original sale price, providing clear evidence that good returns remain for high street business owners who decide to sell.

And investment backing can come in many forms, even helping travel veterans overcome profound financial difficulty and enabling them to contribute to the vitality of the high street once more.

If debt or equity are not viable for the travel businesses facing more serious difficulties, then it makes sense to get advice and consider more serious restructuring options to help save the business and protect jobs.

The CVA

A Company Voluntary Arrangement (CVA) can be an effective way of reducing monthly outgoings while binding all creditors to a repayment contract.

While at least 75% (by value) of creditors within the CVA need to vote in its favour it can be a good way to re-evaluate your business’ operational structure and streamline its assets while keeping creditors and suppliers on-side for the future.

There is also a similar solution – a Fast Track CVA – which adopts the principles of a standard CVA over a faster timeline; usually around six to eight weeks. It specifically allows smaller, owner-managed businesses to return to ‘business as usual’ as quickly as possible, in a supportive environment. This can work well for businesses that were profitable before Covid-19.

Pre-pack administration

Other options include a pre-pack administration. This results in the sale of the underlying assets of the business to a third party or existing director while leaving some liabilities, which may prevent the business being viable, behind. It can also mean jobs are saved as the business continues in a different or reduced form, which means the reputation of the company is protected.

The fact is that, even during this tense climate, there is an opportunity to consider going down a slightly new path, creating a partnership that makes the future more solid or sourcing new finance to bring on fresh investment and even fresh faces to your business that could help it thrive out of adversity.

Businesses need to be alert, however, about any future operational issues which could flag up some difficulties; wage inflation, for example, is potentially on the horizon, which could bring on more financial worries for already struggling businesses.

Nonetheless, the travel industry will not just stay, but will rise again.

Now, more than ever, people need a break – and this industry can provide that. It just needs to know that it still has the tools to do it.

We have experience of helping travel businesses of all sizes navigate challenging situations unlock the best possible future, and it’s never too early or late to get good advice.

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