BUSINESS TAKES ACTION TO CUT COSTS AND MAINTAIN CASHFLOW AS FEAR OF RECESSION TAKES HOLD
UK businesses are taking action to cut costs and preserve cashflow as the fear of a serious downturn takes hold, according to a survey of 500 small and medium-sized businesses by chartered accountants and business advisers MacIntyre Hudson. The research found that 84% believe that there has been a significant deterioration in the overall economic climate for businesses in the last 12 months. Over half (55%) report that trading conditions in their own business have become more difficult since last year, while 83% are anxious as to how business conditions will develop over the next year.
In the face of these fears, businesses are already taking action, focussing on controlling and where possible reducing costs, and maintaining cashflow within the business. Three quarters (75 %) are imposing stricter control of operational expenditure, while 44% have reduced their capital expenditure. 30% are already reducing the number of staff they employ. The importance of cashflow has also been recognised, with 47% tightening credit control for existing customers and 44% conducting stricter credit assessments for new clients.
Atul Kariya, principal at MacIntyre Hudson, comments: “In the current economic climate, prudent action to control costs and maximise cashflow is essential. The UK economy has enjoyed a long economic cycle with 15 years of economic growth, during which most businesses found that increasing revenues was a natural consequence of a generally buoyant economy. However in today’s more difficult climate, tight control of cost and a focus on cashflow have become of paramount importance as the sales growth may simply not be there anymore.
“Our survey shows that almost a third of companies are already, at this stage of the cycle, reducing their headcount. In today’s service economy, labour is the biggest cost in many businesses. While costs must be kept under control, it is important to avoid downsizing in such a panic that the ability to deliver is compromised. Those businesses which can most effectively manage this delicate balancing act will be best placed when the upturn eventually comes.”
While the research found a majority of businesses are experiencing the downturn directly, a substantially larger majority are more generally concerned about economic prospects, with 78% stating that media coverage of the downturn and the worsening outlook for the economy has influenced their expectations.
The research found that businesses with borrowings are feeling most exposed to the downturn, with 89% of them reporting a significant deterioration in business conditions and 63% stating that trading in their own business has become more difficult. 63% of indebted businesses have found both that the interest rate at which banks will lend to them has increased in the last six months, and that the terms of lending have become stricter. They are also cutting costs at a greater rate than firms without debt, with 81% imposing stricter expenditure controls and 40% reducing headcount.
Kariya added: “As a result of the credit crunch, bank finance has become both more expensive and harder to obtain. Any business with high gearing is heavily exposed to a downturn in trading. With bank lending requirements becoming more onerous, this is most likely to affect fledgling and expanding firms already operating in a tough market.”
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