State of play for businesses

Insight bite: State of play for businesses

Business leaders have weathered storm after storm over the past year. Despite recent economic turmoil, ambition remains, and firms appear intent on growth and investing in their people.

Businesses have experienced mixed results when it comes to their earnings in the past year, with nearly half (47%) experiencing an increase in their cash reserves. However, another 37% of managing directors have reported a loss in cashflow, reflecting high market ambiguity.

“Despite the UK appearing to narrowly avoid a recession, economic headwinds still abound and the cost of doing business is astronomically high. So, it’s no surprise that many businesses are being careful to put themselves in a better financial position to weather a storm.

It’s also easy to see the impetus for so many businesses to be focusing on growth in the current economic environment. The old adage is that a business that is standing still is moving backwards, and that’s especially true in times of high inflation.”
Jeremy Over, Partner

It seems many firms have taken this mantra to heart, with nearly seven in ten (68%) saying they are investing in growth – a quarter (26%) plan to do so through more acquisitions.

Market uncertainty is making it harder to walk away

Volatility in the market is affecting business leaders’ plans – many are delaying plans to exit their firms, instead opting to remain at the helm while economic waters are choppy.

More than half (51%) said the state of the economy had forced them to push back plans to handover the day-to-day running of their company, sell their business, or retire.

This trend for pressing pause is consistent across the M&A market:

“We’re seeing a lot of potential buyers and sellers sitting on their hands and being a bit more cautious about whether this is the right time.

If you’re a buyer or an investor, you’ll be aware of the risks that inflation is posing to so many businesses, and so you’re likely going to take a much more focussed approach. The M&A market too, which has been very buoyant in recent years, is also seeing a slowdown in the level of deal-doing.

Given the added difficulty in many sectors attached to securing good offers for businesses, it’s no surprise that fewer owners are looking to sell and are instead sitting tight and waiting for the right time.”
Jeremy Over, Partner

Despite the challenges, most leaders are intent on expansion and over two thirds (68%) of firms plan to invest in growth over the next year despite less than half (47%) increasing cash flow in the last 12 months.

Firms are looking to external investment to provide the capital they need for expansion. Almost all respondents (95%) said they plan to take on some form of external investment over the next 12 months, including crowdfunding (30%), asset finance (28%), venture capital and private equity (26%).

Rising inflation causing workplace deflation

Nearly all businesses (96%) said that the cost-of-living crisis has had a significant impact across their workforce, with financial stress causing a range of issues in the office.

Almost a third of leaders are finding it more difficult than ever to motivate employees, with 18% recognising that the spark of ambition across their workforce has waned in the face of tumultuous economic changes.

This downturn in workforce sentiment has also begun to show through in employee approach to working, as so-called “quiet-quitting” – where employees are seen to do only the minimum of their job requirements – has become more noticeable in 1 in 4 workplaces.

“It’s clear that more people across the UK are reassessing their working habits as the cost-of-living crisis starts to bite. Wages falling behind inflation is likely making employees feel underpaid and undervalued – a problem that will be magnified for small businesses more susceptible to the current economic instability.

Businesses are looking at the right solutions, from reviewing their pay structures and introducing new flexible ways of working, to introducing better training and wellbeing support. But it’s vital that these efforts form part of a wider, targeted strategy that is rooted in honest conversations with employees and is focused on the broader ambition of achieving a positive culture within their companies.”
Katherine Maxwell, Partner

People-centric business plans

A fifth of employers are reviewing salaries in efforts to be more attractive and a further 25% are looking to provide more benefits to workers.

“For businesses investing in growth, a big priority is staff and talent retention. But it’s currently proving very difficult to get the right people to service the demand that exists.

Better pay is the obvious answer, but not every business can afford to keep increasing salaries. Our data shows that firms are being more imaginative in their efforts to be seen as the go-to employers in their sectors, with better flexibility and more perks proving very popular solutions.”
Katherine Maxwell, Partner

Recognising that many employees are incurring more costs at home – electricity and heating, for example – thanks to remote working, 13% of directors are considering offering the tax-free home working allowance.

“It is increasingly common for key people to live a long way from where their company is based because they only need to go into the office one or two days a week. We’re still not seeing businesses ditch workplaces altogether though and it seems many employees – especially younger staff – are still attracted to the amenities and sense of community that vibrant office culture offers.”
Katherine Maxwell, Partner