Declining customer spending a top challenge for over half of mid-sized businesses

• Declining customer spending is one of the biggest challenges facing 57% of the UK’s mid-sized businesses as the cost of living crisis continues to bite
• Businesses are turning their attention to cutting energy and payroll costs as over one in three (37%) seek new sources of funding
• Business leaders are calling for fresh financial support whilst trying to remain positive, with 22% focused on overseas expansion and a further 17% on growth in the UK

A decline in customer spending due to rising costs is one of the biggest challenges facing the UK’s mid-sized businesses over the next six months, according to the latest research from accountancy and business advisory firm, BDO.

In the quarterly survey of 500 mid-sized business leaders, customers purchasing fewer products or services due to inflationary pressures is a significant concern for over half (57%). This rises to nearly two thirds (65%) of retail and wholesale businesses.

More than half of manufacturing businesses (53%) are worried about customer spending, set against a backdrop of slowing order volumes and complex customs rules, plus high input prices and energy bills.

To compensate for lower revenues, businesses are trying to scale back their spending. More than a third of businesses (34%) hope to reduce overheads, including downsizing premises or selling off property to manage rising mortgage payments. A further 30% are considering pausing salary increases or bonuses they previously would have awarded for promotions or performance reviews.

Forced to keep tight control of payroll costs against this economic backdrop, almost two-fifths (38%) of hospitality and leisure businesses and over a third (36%) in retail and wholesale are considering pausing increases in pay and reward.

With reduced customer demand a significant concern, businesses are turning their attention to securing new financing as their top priority over the next six months. Over a third (37%) are prioritising sourcing new debt financing, such as bank loans and private credit, or new investment for the business, through sources such as private equity.

Even after recent falls in wholesale energy prices, reducing energy costs is also a significant priority for mid-sized businesses ahead of the winter period. Two in five (42%) are considering using existing support schemes to reduce their energy bills, such as the Government’s Energy Bills Discount Scheme, Industrial Energy Transformation Fund or the proposed Demand Flexibility Service for business energy customers. Over a third (35%) are looking to reduce their energy consumption by scaling back use of appliances, air conditioning or heating.

Despite the uncertain outlook, businesses are trying to remain positive, ranking expansion as their second-biggest priority for the rest of the year after raising new financing. Over a fifth (22%) are focusing on overseas expansion over the next six months, while a further 17% are prioritising expansion in the UK.

While some businesses are looking at growth opportunities overseas, many believe wholesale changes and renewed government support would improve their operating environment in the UK. Over one in three (36%) are calling for fresh financial support, including levelling-up funding or other government schemes, to mitigate high inflation or increased interest rates. The same number (36%) want more support to tackle skills shortages unique to their business. These calls are particularly high in the hospitality and leisure sector, rising to 46% and 42% respectively.

Richard Austin, Partner at BDO LLP, said:

“The mounting pressures facing businesses in an inflationary and high interest-rate environment are not getting any easier to navigate. It’s worrying to see businesses fighting to cut costs when they want to prioritise expansion in the UK and overseas instead.

“These businesses are the UK’s economic engine. While they are tackling the pressures they face head-on, they need support to drive the revenue creation and significant employment opportunities they are responsible for across our economy. Targeted funding, new trade opportunities and support to resolve persistent labour and skills shortages will all go a long way in helping them achieve their true growth potential.”

ENDS

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy. 

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

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The BDO global network provides business advisory services in 164 countries, with 95,000 people working out of 1,713 offices worldwide. It has revenues of $11.8bn.

Contacts

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Ella Hatfield
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Verriin Kaur
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