Member Article

Over 1 in 4 mid-sized Scottish businesses plan to restructure as cost pressures mount

According to new research from leading business and financial adviser Grant Thornton UK LLP, a combination of inflationary pressures, rising interest rates and high energy costs, and ongoing supply chain issues are all significantly impacting the financial viability of many mid-sized businesses.

Grant Thornton’s Business Outlook Tracker*, which surveyed 50 Scottish businesses in October 2022, found that, in the face of these mounting pressures, almost a quarter (24%) of respondents have already restructured their operations, with a further 28% having plans to do so.

The survey recorded lower levels of optimism from respondents on their business’ funding position – dropping significantly (-42 percentage points) compared to August 2022, to just 34%.

Many businesses are having to secure additional finance to work through the escalating costs facing the market, with 14% already having secured further funding and 56% planning to do so.

The strain on funding has also led to a considerable drop in investment expectations across all areas monitored by the Tracker. The most significant drops compared to the last round in August 2022 were seen in skills development (-27pp), recruitment (-27pp) and research and development (-23pp). There was also a -21pp drop in the number of businesses planning to increase investment in growing in international markets.

But investment looks to be being directed to areas that will have the most impact on reducing costs. Over half (60%) of respondents have already invested, or are planning to invest, in productivity, efficiency and automation.

In the face of increasing costs and ongoing changes to government fiscal policy, the number of businesses optimistic about the outlook of the UK economy has also plummeted -24pp, compared to August 2022.

Stuart Preston, Restructuring Partner, Grant Thornton UK LLP, said:

“Scottish businesses are facing incredible cost pressures from all sides. The combination of input cost price increases, high energy costs and rising interest rates, are seeing businesses faced with increases from 5% to as much as 100% in some cases, when combined with the added strain of ongoing supply chain shortages in some areas. The severity of the environment is clear, with the majority of those surveyed either planning to restructure their operations, or already having done so.

“There isn’t one solution to fix these issues but there are always sensible steps that businesses can take to start to rebuild confidence. For example, reducing the businesses debt level to counter interest rate rises, reducing energy usage and looking for efficiencies in the face of energy cost rises, and considering alterative, cheaper suppliers.

“Many Scottish businesses are also reviewing their budgets for the next 6-12 months. It’s vital that these forward plans account for assumptions that may need to be made over this period, such as the impact of the end of energy bill relief, and rising interest costs. Businesses need to be proactive and take action where they can, rather than burying their heads in the sand – its these businesses who will work their way through this challenging environment, and emerge a more resilient, efficient organisation.”

This was posted in Bdaily's Members' News section by John Robson .