Mid-market braces for further cuts as lockdown pressure increases

04 January 2021 Consultancy.uk
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UK mid-market organisations are braced for further restructuring as increased Covid-19 restrictions place pressure on funding. According to new research, while almost three-quarters of SMEs can continue to trade using only existing funds, just under half will need to cut costs to do so.

With the final chaotic closing of the Brexit transition period, and with even tighter lockdown restrictions likely to spread further across the UK as cases spike thanks to a short-lived relaxation of rules over Christmas, more and more small and mid-sized enterprises are facing hard times ahead in 2021. According to Grant Thornton’s International Business Report, economic uncertainty in Britain is the highest the researchers have ever recorded, while a record number of firms reported that regulations were further constraining their growth.

Commenting on the findings, Dave Munton, Head of UK Markets and Clients at Grant Thornton UK, said, “The latest IBR data demonstrates just how challenging the operating environment continues to be for UK businesses. There will be more difficult decisions to be made by business leaders across the country in the coming days, weeks, and months. As tier 4 restrictions look likely to spread further across the country, and with the end of the Brexit transition period almost upon us, it is crucial that business leaders build on the resilience and agility they have displayed throughout this year.”

Mid-market braces for further cuts as lockdown pressure increases

The tumultuous events of 2020 have created an uncertain and challenging operating environment that has directly damaged revenue, profits, and cash flows for mid-market businesses. Around 49% of Grant Thornton’s 275 UK respondents said they expect to see a decrease in annual business revenue by the end of 2020, with 29% expecting a significant decrease of more than 10%. Looking ahead, meanwhile, economic uncertainty remains at the highest levels the IBR has ever recorded, with 69% of respondents saying it is the number one constraint to growth.

On top of this, complications regarding red tape are seen as a further constraint on businesses moving forward. With further lockdown regulations emerging in response to an alarming spike in Covid-19 cases in Britain, and the UK’s exit from the EU also changing export rules with the continent, the number of firms expecting to be inhibited has grown from 45% in the first half of 2020 to a record high of 55%. As a result, while 72% of UK mid-sized business can continue to trade using only existing funds, 44% of them said they will have to cut costs and restructure to do so – a 2% increase on the first half of 2020.

Despite the strong headwinds challenging mid-market businesses, however, they have still retained confidence to invest in the future. As they seek to benefit from the global economic recovery – whenever that actually manifests itself – new operating models are favouring a technology and digital led form of trade, which is reflected in the investment priorities outlined by the UK mid-market respondents. Technology remains the number one investment area for mid-sized firms, 44% expect to increase investment for 2021. At the same time, the number of businesses expecting to increase investment in R&D jumped 6% from the first half of the year, hitting 35%.

Munton concluded, “It’s clear from the findings that a need for digital business models, data management and skills and talent for the future continues to drive investment decisions. It is encouraging to see mid-market businesses very much at the forefront in this regard… Though it is unquestionably good news that vaccines are starting to roll out in some markets, it will still be some time before we return to anything approaching normality – and so the uncertain, volatile operating climate will continue. Many businesses have already made transformational changes to their operating models and investments in the future, and this shows no sign of abating as everyone looks to ensure they are able to compete in a post-Covid world.”