Introduction
In today’s changing economic landscape, businesses of all sizes are grappling with rising costs and inflation. This article explores the current challenges faced by businesses in the south-west, especially smaller ones, and the ways they are working to adapt and grow despite the pressures. We’ll look at the specific impacts on industries like hospitality, discuss how businesses are adjusting their workforce, and examine the market sentiment and financial outlook for the rest of the year. Whether you’re a business owner or simply interested in the economic trends, understanding these dynamics can shed light on how companies are staying resilient in tough times.
Economic Challenges
The impact of rising inflation and operational costs is being felt by businesses across the south-west, with smaller companies (11-50 employees) finding it especially challenging. With interest rates above 5%, nearly half of these smaller businesses have cited economic pressures as their biggest concern. The ripple effect of these higher costs impacts everything from goods and services to employee wages, putting additional strain on day-to-day operations.
The hospitality and tourism sectors have been hit particularly hard. Over half (56%) of businesses in these industries view economic pressures as their main worry, with energy costs being a major burden. In fact, 67% of hospitality and tourism businesses report that rising energy costs are their biggest issue. This is especially challenging for industries like hospitality, where profits often rely on volume rather than high margins, making it difficult to pass these increased costs onto customers.
In response to these pressures, many businesses have cut non-essential spending. For larger businesses, this has meant considering staff reductions as a way to manage costs, while smaller businesses have tried to avoid layoffs, focusing on other cost-saving measures instead. This approach helps maintain a positive workplace culture, which can be beneficial for retaining loyal employees in challenging times.
Workforce Adjustments
Despite the efforts of many businesses to avoid layoffs, over a quarter (28%) of businesses in the south-west have had to let employees go over the past year. Larger businesses have been more likely to downsize, with almost half (45%) reducing their workforce to balance their finances. On average, these staff reductions have led to a 19% decrease in headcount. On the other hand, smaller businesses (1-10 employees) have mostly avoided layoffs, with only 8% having reduced their workforce. By prioritising employee loyalty, these smaller businesses hope to strengthen their teams and maintain stability.
Market Sentiment
Despite economic challenges, more than half of businesses (55%) are optimistic about the rest of the year. This positive outlook is especially strong among larger businesses, where 70% of small businesses, 57% of medium businesses, and 73% of large businesses feel they are in a better position than last year. However, smaller businesses, like micro businesses, are more cautious, with only 31% reporting a similar level of optimism.
Businesses across various sectors have also given a positive rating to the market buoyancy, averaging a score of 7.0. There are some differences across sectors: the charity and not-for-profit sectors gave a score of 6.2, while the energy sector scored higher at 8.2. These ratings highlight the resilience and adaptability of different industries as they navigate uncertain market conditions.
Simon Tombs, Managing Partner at Monahans, one of the largest accounting firms in the South West, said “Rightly so, the majority of businesses are largely feeling optimistic, which overrules the ‘doom and gloom’ narrative we are seeing in the news agenda. The fact that half of businesses have reported increased turnover whilst navigating turbulent financial conditions demonstrates a level of resilience and optimism, which puts them in good stead to capitalise on improving market conditions.”
Financial Performance
Nearly half (47%) of businesses reported an increase in their revenue, averaging a growth of 31.5% year-over-year. Only 19% saw a decrease, suggesting that many businesses have managed to grow despite the economic challenges. This growth showcases a level of resilience that defies the often-pessimistic economic narrative and highlights that many companies are still managing to succeed and even thrive.
Support and Future Planning
Accountancy firms continue to play a key role in helping businesses navigate these economic challenges. They provide valuable advice on managing cash flow and long-term financial planning, enabling businesses to respond to economic changes with confidence. With expert support, companies are better prepared to adjust their strategies and focus on sustainable growth.
Conclusion
The south-west’s business community has shown resilience and adaptability in the face of economic challenges, from rising costs to sector-specific issues like energy expenses. While workforce adjustments and spending cuts have been necessary, many businesses remain optimistic about the future. With support from advisors and a commitment to strategic planning, businesses across industries are finding ways to not only survive but also set a foundation for future growth. By focusing on careful financial management and fostering positive workplace environments, businesses are proving that resilience is the key to navigating tough economic times.
