A combination of inflationary pressures, rising interest rates, high energy costs and ongoing supply chain issues are impacting the financial viability of many Scottish mid-sized businesses.
Business advisory firm Grant Thornton’s Business Outlook Tracker, which surveyed 50 Scottish businesses in October, found that almost a quarter (24%) of respondents have already restructured their operations, with a further 28% having plans to do so.
The survey recorded lower levels of optimism from respondents on their business’ funding position – dropping by 42 percentage points compared to August to just 34%.
Many businesses are having to secure additional finance to work through the escalating costs facing the market, with 14% already having secured further funding and 56% planning to do so.
The strain on funding has also led to a considerable drop in investment expectations across all areas monitored by the tracker. The most significant drops compared to the last round in August were seen in skills development (-27%), recruitment (-27%) and research and development (-23%).
There was also a 21% drop in the number of businesses planning to increase investment in growing in international markets.
But investment looks to be being directed to areas that will have the most impact on reducing costs. Well over half (60%) of respondents have already invested, or are planning to invest, in productivity, efficiency and automation.
In the face of increasing costs and ongoing changes to government fiscal policy, the number of businesses optimistic about the outlook of the UK economy has also plummeted by 24%, compared to August.
Stuart Preston, restructuring partner at Grant Thornton, said: “The combination of input cost price increases, high energy costs and rising interest rates, are seeing businesses faced with increases from 5% to as much as 100% in some cases, when combined with the added strain of ongoing supply chain shortages in some areas.
“The severity of the environment is clear, with the majority of those surveyed either planning to restructure their operations, or already having done so.
“There isn’t one solution to fix these issues, but there are always sensible steps that businesses can take to start to rebuild confidence – for example, reducing the businesses debt level to counter interest rate rises, reducing energy usage and looking for efficiencies in the face of energy cost rises, and considering alternative, cheaper suppliers.
“Many Scottish businesses are also reviewing their budgets for the next six to 12 months,” he continued, adding: ”It’s vital that these forward plans account for assumptions that may need to be made over this period, such as the impact of the end of energy bill relief, and rising interest costs.”
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