New research from Grant Thornton UK LLP’s Business Outlook Tracker finds that rising interest rates and high costs have pushed many businesses to review their spending, freeze pay increases and restructure their operations, in a bid to manage their finances.
The survey of 605 UK mid-sized businesses finds that 52% have already frozen salary increases, with a further 36% planning to do so. Almost half (48%) have also frozen workforce bonuses.
The research finds that spending on people costs has been reined in across most areas, with 45% also having reduced their headcount and many businesses freezing recruitment (46%).
As well as tightening costs for people, many businesses have had to make changes to their operations in a bid to manage costs. Almost all (91%) have either already restructured their operations or have plans to do so. The research shows that spending is being closely monitored within the market, with almost half (47%) having reviewed their non-essential spending and a further 42% planning to do so.
Businesses are looking for solutions in a bid to improve performance amid a tightening of spending. Over half have invested in productivity, efficiency and automation and a further 40% have plans to explore options in this area.
Chris Petts, Restructuring Partner, Grant Thornton UK LLP, said:
“While inflation is, slowly, starting to fall, it’s clear that firms are remaining prudent and closely monitoring their spend across all areas from wages to recruitment and operations. Ensuring they keep a close eye on their financial position, and controlling discretionary spend, will help many to remain in a robust position despite the cost pressures they may be facing.
“We have also seen an increase in optimism about business’ future revenue growth expectations, which suggests that many are confident that the actions they’re taking now, or have planned, are sufficient to work through this period. Particularly as we have seen slight real wage growth for the first time in over a year which, when combined with the fall in energy costs and usage over the summer, means that consumers will have more disposable income to spend.”
As businesses continue to work through this challenging period of high costs, almost three quarters (74%) of the businesses surveyed anticipate that they will need to raise additional funds over the next year. Of these, 74% say that the current terms agreed with their lender are under pressure, whilst a quarter of all respondents said that accessing finance has become more challenging over the last 12 months.
Jon Bramwell, Debt Advisory Director, Grant Thornton UK LLP, said:
“The combined effect of increasing borrowing costs and wider economic pressure on businesses means that the high street banks are finding it more difficult to lend to mid-sized businesses. This is particularly true for companies in sectors that are more challenged including manufacturing, hospitality, retail, construction and real estate. This poses a challenge for businesses needing to extend their existing borrowing arrangements or raise new capital when they no longer fit what their traditional lenders are looking for.
“However, the business finance market is undergoing constant evolution with a wide range of lenders, including challenger banks, asset-based lenders and private lenders, now actively looking to help businesses which the high street banks no longer feel able to support. This creates all important options to access capital for mid-sized organisations and much needed flexibility when it is most needed."
News release
Salary freezes and restructures rife amongst mid-market, as high rates bite
11 Sep 2023
New research from Grant Thornton UK LLP’s Business Outlook Tracker finds that rising interest rates and high costs have pushed many businesses to review their spending, freeze pay increases and restructure their operations, in a bid to manage their finances.
The survey of 605 UK mid-sized businesses finds that 52% have already frozen salary increases, with a further 36% planning to do so. Almost half (48%) have also frozen workforce bonuses.
The research finds that spending on people costs has been reined in across most areas, with 45% also having reduced their headcount and many businesses freezing recruitment (46%).
Mid-market restructuring operations
As well as tightening costs for people, many businesses have had to make changes to their operations in a bid to manage costs. Almost all (91%) have either already restructured their operations or have plans to do so. The research shows that spending is being closely monitored within the market, with almost half (47%) having reviewed their non-essential spending and a further 42% planning to do so.
Businesses are looking for solutions in a bid to improve performance amid a tightening of spending. Over half have invested in productivity, efficiency and automation and a further 40% have plans to explore options in this area.
Chris Petts, Restructuring Partner, Grant Thornton UK LLP, said:
“While inflation is, slowly, starting to fall, it’s clear that firms are remaining prudent and closely monitoring their spend across all areas from wages to recruitment and operations. Ensuring they keep a close eye on their financial position, and controlling discretionary spend, will help many to remain in a robust position despite the cost pressures they may be facing.
“We have also seen an increase in optimism about business’ future revenue growth expectations, which suggests that many are confident that the actions they’re taking now, or have planned, are sufficient to work through this period. Particularly as we have seen slight real wage growth for the first time in over a year which, when combined with the fall in energy costs and usage over the summer, means that consumers will have more disposable income to spend.”
Lending under pressure
As businesses continue to work through this challenging period of high costs, almost three quarters (74%) of the businesses surveyed anticipate that they will need to raise additional funds over the next year. Of these, 74% say that the current terms agreed with their lender are under pressure, whilst a quarter of all respondents said that accessing finance has become more challenging over the last 12 months.
Jon Bramwell, Debt Advisory Director, Grant Thornton UK LLP, said:
“The combined effect of increasing borrowing costs and wider economic pressure on businesses means that the high street banks are finding it more difficult to lend to mid-sized businesses. This is particularly true for companies in sectors that are more challenged including manufacturing, hospitality, retail, construction and real estate. This poses a challenge for businesses needing to extend their existing borrowing arrangements or raise new capital when they no longer fit what their traditional lenders are looking for.
“However, the business finance market is undergoing constant evolution with a wide range of lenders, including challenger banks, asset-based lenders and private lenders, now actively looking to help businesses which the high street banks no longer feel able to support. This creates all important options to access capital for mid-sized organisations and much needed flexibility when it is most needed."