Member Article

West Midlands businesses restructuring to cope with mounting cost pressures

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

The leading business and financial adviser’s latest Business Outlook Tracker* found that just under one quarter (24%) of mid-sized businesses in the West Midlands have restructured their operations to face these challenges, with a further 51% having plans to do so.

25% of business leaders in the region have already reviewed their headcount due to the impact of rising costs and inflationary pressures, with an additional 35% intending to do so.

The survey recorded that optimism levels from respondents on their business’ funding position has dropped to just 57%, which is a fall of -16 percentage points (pp) compared to August.

Many businesses in the region are having to secure additional finance to work through the escalating costs facing the market, with 29% already having secured further funding and 35% planning to do so.

The strain on funding has also led to a considerable drop in investment expectations across most areas monitored by the Tracker. The most significant drops compared to the last round in August 2022 were seen in technology (-24pp), research and development (-24pp) and recruitment (-20pp). There was also a -18pp drop in the number of businesses planning to increase investment in employee reward and benefits.

But investment looks to be being directed to areas that will have the most impact on reducing costs. More than half (59%) of respondents have already invested, or are planning to invest, in productivity, efficiency and automation.

The number of businesses in the West Midlands that are optimistic about the outlook of the UK economy has also decreased by -12pp, compared to August 2022.

Sue Knight, Partner and Practice Leader at Grant Thornton UK LLP in the Midlands, said: “Businesses in the West Midlands are facing incredible pressures, with an almost perfect storm of cost-based challenges coming at them from all sides. The combination of input cost price increases, high energy costs, rising interest rates and supply chain bottlenecks, means that many businesses are facing increases ranging from 5% to as much as 100%.

“The severity of the situation is clear, with the majority of businesses we surveyed either planning to restructure their operations or already having done so. Fortunately, there are always useful steps that businesses can take to help rebuild confidence. This could include reducing the debt level to counter interest rate rises, minimising energy usage, looking for efficiencies in the face of energy cost rises, and considering alternative, cheaper suppliers.

“Right now, many businesses in the West Midlands will be looking ahead and reviewing their budgets for the next 6-12 months. These plans need to account for assumptions that may need to be made in the coming year, such as the end of the energy bill relief scheme, and rising interest costs. Businesses need to be proactive, dynamic and agile – as forward-thinking businesses will better work their way through this challenging environment, and emerge as more resilient, efficient organisations.”

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