Majority of business ready for recession - RSM

Research suggests almost three-quarters of UK businesses are feeling resilient despite the exceptionally tough economic outlook. According to the latest RSM UK 'The Real Economy Report ' 71 per cent of middle market businesses say they are prepared to face the recession.

While businesses seem confident in their ability to navigate the economic headwinds, RSM 's research showed almost half of businesses (44 per cent) now feel rising energy prices present their biggest risk, while increased cost of finance (30 per cent) and rising staffing costs (30 per cent) are equally viewed as their second biggest.

Supply chain disruption also continues to be considered a threat by over a quarter (28 per cent) of businesses.

Record inflation this year has forced nearly half (44 per cent) of businesses to increase their prices, and almost a quarter (24 per cent) are unable to pass this additional cost on to their customers.

Almost half of those businesses experiencing increased cost pressures expect this to last at least 12 months.

Mark Taylor (pictured), regional managing partner, RSM West Midlands said: “Record inflation, energy price shocks, the Brexit aftermath, supply chain issues and the pandemic have all combined to create a perfect storm for many middle market businesses in recent months.

“Some sectors, such as retail and manufacturing, are undoubtedly battle scarred by months of increased costs and barriers to trade, but others - particularly those that are not so reliant on energy - such as financial services, legal and fintech, are coping well and even spotting the opportunities in the current tough economic climate.

“This makes it a highly polarising time for the West Midlands economy, with our traditional heavy industries facing very difficult conditions whilst some locally important services sectors, particularly in the knowledge economy, continue to flourish. ”

RSM 's report shows middle market businesses are demonstrating resilience and fighting back with a range of measures to stay afloat.

Many say they are also looking to access finance, either to weather the recessionary storm ahead or maximise opportunities, such as acquisitions of struggling companies. Over a third (36 per cent) want to access finance to make capital investments, while more than a quarter (29 per cent) want to undertake opportunistic acquisitions.

Worryingly though, more than a quarter want to access finance to address concerns over breaking exiting covenants, suggesting they are at risk of defaulting on their financing obligations.

Jason Stone, head of special situations, mergers and acquisitions, RSM UK adds: “The question of financing and investment options will be a consideration for many businesses next year. Stronger companies will capitalise on the opportunity, by making strategic acquisitions for future growth.

“Companies with a more worrying debt structure should seek advice early to avoid the spectre of breaching financing obligations and potentially ceasing to trade. Both types of companies are increasingly aware that growth does not necessarily require conventional financing, with many companies open to alternative financing methods and equity investments. ”