Christmas profits aren’t guaranteed: How hospitality businesses should prepare

(Yes, I really am writing this article in October).

Christmas is unavoidably in the air whether we like it or not.

You’ll see the signs when you’re walking along the dockside in Stromness, venturing onto Prince’s Street in Edinburgh or strolling through Union Square in Aberdeen.

It’s as obvious in Lerwick as it is in Laurencekirk and, regardless of how it makes you feel, the hospitality businesses are getting ready for the rush.

It’s a massive boom to the hospitality economy, in most cases, but it does come with significant risks both on this side of the season and in January.

Why do we urge caution and how can you assess your own risks?

For many hospitality businesses, Christmas can account for a disproportionate share of annual revenue.

The temptation is to view a full booking diary as a guarantee of profit, but turnover and profitability are not the same thing.

In fact, the festive period often requires significant investment before the first week of December rolls around.

Additional stock needs to be purchased, seasonal staff recruited, overtime budgets agreed and suppliers paid.

If cashflow is not carefully managed, businesses can find themselves under pressure despite having one of their busiest trading periods of the year.

The first question to ask is whether increased sales will genuinely translate into increased profit.

Rising wage costs, premium pay rates, utility bills and food inflation can quickly erode margins if pricing has not been reviewed.

A packed venue is not necessarily a profitable one, and it is also worth examining your cashflow position.

How much money will leave the business during November and December before customer payments are received?

Businesses hosting corporate events may wait several weeks for invoices to be settled, while suppliers often expect payment much sooner.

You should also consider the risks of relying too heavily on festive trading. What happens if severe weather disrupts travel?

What if there is a last-minute spike in cancellations?

Here in Scotland, where winter weather can have a significant impact on transport links, particularly in island and rural communities, contingency planning is essential.

A useful exercise is to stress-test your forecasts.

Rather than assuming every table is filled and every room occupied, model different scenarios:

• What would happen if bookings were 10 per cent lower than expected?
• Could the business absorb a period of bad weather?
• How would cashflow cope if several large customers paid late?
• Are stock levels appropriate, or is there a risk of over-ordering and waste?
• Do you have sufficient working capital to get through the quieter months of January and February?

The businesses that emerge strongest from Christmas are often not those with the busiest December, but those that balance festive opportunities with sensible financial planning.

The goal should not simply be a successful Christmas, but a profitable start to the New Year as well.

For help preparing your business, please get in touch.