BUSINESS ADVISORY

Resilience in a crisis: how can companies react in time?

Vedran Miloš

 

Every two months, the UK regional office of Grant Thornton surveys more than 600 leaders of mid-sized companies, who share their expectations and priorities for the future. This explains the factors behind the numbers and what companies can do to prepare for the coming crisis. The latest survey showed that business optimism remains relatively high compared to consumer confidence, which has been at a multi-year low, and leaders are aware that they must act now in order to survive the coming months.

 

How safe do companies feel?

Perhaps unsurprisingly, the latest survey found that the number of businesses that are pessimistic about the economic outlook has doubled since August and now stands at 15%. This pessimism spills over into lower expectations for income growth – 59% of respondents said they felt positive, which is a 16% drop in just two months. This percentage may still seem surprisingly high, considering how low consumer expectations are due to product price hikes.

However, this is unlikely to remain a viable option, given the higher household energy expenditure and mortgage repayments due to rising interest rates. The effects of falling consumer confidence are already visible, with customers looking to buy less to compensate for rising prices. Consumption is expected to further decrease during the winter when, with soaring energy prices, consumers will choose priorities when shopping.

 

Priorities of business leaders

Although many businesses have so far managed to mitigate the impact of rising costs, the latest survey results show that they are aware of the need to take action to ensure sufficient cash flow in the future. About two-thirds of companies say they are currently reviewing the structure of their operations and headcount or will soon do so. One third have already secured additional funds, and 40% of them intend to do so in the near future. 15 % of respondents felt pessimistic about their finances, compared to 9% in August.

Interest rates are expected to rise further at the end of this year and into early 2023. Banks are tightening their credit requirements for mortgages, corporate loans and other requirements. This leaves businesses concerned about whether they will get the credit they need to weather the crisis and, if so, whether they can afford it.

 

What else can companies do now to prepare?

Even as businesses face a recession around the corner, which is expected to last through most of 2023, there have been some changes in recent weeks that could help business leaders prepare more effectively. Crucially, increased economic stability will allow companies to better understand the specific challenges they will face in the coming months. While there is no one-size-fits-all strategy for crisis preparedness, there are some key considerations that we expect most businesses will need to focus on.

Review your budget for the next 6-12 months to ensure that plans for the future take into account assumptions that may need to be made during this period, such as the impact of energy price caps and changes in consumer demand. Businesses will need to secure enough working capital to withstand dwindling customer demand, which means early talks with lenders. In the long run, the only way you can increase productivity is if the different parts of the ecosystem work together.

As many businesses enter a difficult 2023, help is available everywhere – especially for those who demonstrate a good understanding of the current economic pressures on their business. We advise you to be proactive in responding to changing customer demands, communicate the issue with lenders to enable credit relief, make sure you are making the most of tax relief, talk to your local board or legislature about grants, and connect with the central government. Also seek help from our local experts at Grant Thornton!

 

 

Data source: Grant Thornton UK LLP