Adapting to economic challenges as an owner managed business

What are the key economic challenges currently facing owner managed businesses?

In the first of our series dedicated to helping owner managed businesses navigate their challenges in a changing landscape, we focus on the economic uncertainties that could influence their decision-making.

In the dynamic landscape of today's economy, owner-managed businesses in the UK face a multitude of challenges, ranging from economic slowdowns to changing legislation and geopolitical uncertainties.

Bishop Fleming recently conducted a survey among its clients, revealing crucial insights into the key issues affecting these businesses and the sectors in which they operate.

Last year saw some significant socio-economic and geopolitical events with far-reaching impacts on businesses worldwide. We asked our clients to share the main issues their businesses grapple with to gain a deeper understanding of these effects.  

Economic Uncertainties and Geopolitical Factors

Owner-managed businesses are feeling the impact of economic slowdowns and geopolitical tensions, which are casting shadows of uncertainty over decision-making processes. The shifting global landscape, including events like Brexit and geopolitical conflicts, adds layers of complexity to business planning and strategy.

Inflation and Rising Costs

Inflation has been a factor in the economy for the first time since the 1970s. This has led to increased costs across various sectors.

From raw materials to fuel costs, businesses are grappling with general cost-of-living issues, which erodes profitability and challenges financial sustainability.

The good news is that inflation fell to 3.4% in February 2024 from a 40-year high of 11.1% in October 2022. However, it is possible that gas and oil prices may start to creep up again due to ongoing conflicts in the world.

Bank interest rates have risen to a current high of 5.25%, but there is an expectation that they will start to fall again later this year. Delaying interest rate cuts will weaken the economy, according to economists.

Legislative Changes

The ever-evolving regulatory environment presents another hurdle for owner-managed businesses. Changing legislation requires continuous adaptation, impacting business planning and resource allocation.

Weak Demand and Financial Market Challenges

Weak demand, coupled with political uncertainties, creates an unfavourable headwind for businesses operating in various industries.

With a general election to be held later this year, business owners will be concerned about the possible impact on their sectors from new regulations on a change of government.

Fiscal targets

Fiscal targets set by the government can constrain economic growth, according to the Institute for Public Policy Research. Whilst such targets can reduce the possibility of bad decision making, the think tank considers they are also stopping the making of good ones, particularly in the field of investment policy.

Client Sector Analysis

Understanding the specific challenges faced by different sectors provides valuable insights into the broader economic landscape:

Construction, Property, and Real Estate: Concerns about consumer confidence, rising costs, and economic slowdowns are prevalent. Issues such as delays in planning applications and weak demand are impacting customer orders.

Professional Services: Recruitment difficulties, skill shortages, and global events affecting investor confidence are key challenges. Rising costs and falling demand add to the complexity.

Retail: The cost-of-living crisis and inflation are squeezing profitability, while challenges like Brexit and recruitment further compound the situation.

Healthcare: Rising costs, particularly in wages, and the need to manage expenses are top concerns, alongside staff retention and retirement planning.

Tourism & Leisure: Economic uncertainties, reduced bookings, and higher operational costs are among the challenges faced by businesses in this sector.

Manufacturing: Fluctuating costs, lower demand, and Brexit-related issues are impacting margins and business expansion plans.

Food & Drink: Rising energy costs and inflation, coupled with Brexit impacts, pose challenges to profitability and product availability.

Technology, Media and Telecommunications: Inflationary pressures and difficulties in attracting new business are key challenges, compounded by rising energy prices and global conflicts.

Conclusion

Owner-managed businesses in the UK are navigating a complex economic landscape marked by uncertainties and challenges across various sectors.

As they adapt to changing market conditions and regulatory frameworks, strategic resilience and agility will be crucial for sustaining growth and profitability.

The economy is showing signs of recovery and economists predict that the improved performance of the service sector in particular, coupled with falling inflation, will help to boost the economic landscape

The 2024 Spring Budget contained some help for business owners, notably the rise in the VAT threshold and the cut in National Insurance contributions, but more help is needed with other business costs. The making permanent of Full Expensing relief for corporation tax will be good news for some companies which are looking to invest in new plant and machinery.

Owner-managed business series

This is an ongoing series. Check out our other articles in the series:

• Adapting business operations
• Adapting to cost pressures
• Adapting to workforce challenges
• Adapting to global and external factors

Get in touch:

To find out how we can help you or your owner-managed business, please get in touch with Fleur Lewis.