Faced with a more uncertain economic climate, a record** number of finance leaders (98%) anticipate operating costs to rise in the year ahead, according to Deloitte’s UK CFO Survey Q1 2022. Almost half of CFOs (46%) expect these rises to be significant. In light of cost increases, there has also been a sharp deterioration in the outlook for corporates’ margins. A majority of CFOs (71%) believe operating margins will fall over the next 12 months, compared to 44% in the previous quarter. But despite this, three-quarters expect revenues to rise over the next year. Meanwhile, capital spending remains a strong priority for 21% of CFOs, even with a more challenging operating environment. Although this has dropped from last quarter’s record high (37%), it remains considerably above the five-year average of 14%. Conducted between 16 and 30 March 2022, Deloitte’s latest quarterly CFO Survey captured sentiment amongst the UK’s largest businesses, against a backdrop of ‘Plan B’ COVID-19 restrictions easing and after the Russian invasion of Ukraine. The latest survey saw 89 CFOs participate, including CFOs of 22 FTSE 100 and 34 FTSE 250 companies. The combined market value of the 58 UK-listed companies that participated is £526 billion, approximately 20% of the UK quoted equity market. Rising uncertainty and risk The invasion of Ukraine has heightened the level of financial and economic uncertainty facing businesses. Over half of CFOs (56%) say that the level of uncertainty facing their business is high or very high. Geopolitics has risen sharply as the top risk facing CFOs’ businesses. With the exception of the pandemic during Q2 and Q3 2020, the risk rating assigned to geopolitics is higher than any other factor since the question was first asked in 2014. Rising inflation, the prospect of further interest rate rises, and persistent labour shortages, also rank high on the list of CFO concerns. Ian Stewart, chief economist at Deloitte, says: “Rising geopolitical risk in the wake of the invasion of Ukraine and alongside high inflation mean that the external challenges faced by business are greater today than at any time in the last eight years. These risks now far eclipse Brexit and the pandemic, which have dominated the list of CFO concerns in recent years. Over the next year, CFOs believe a mix of rising costs and slower growth are set to squeeze margins. “In spite of this – as finance leaders have become accustomed to navigating a more volatile business environment – they remain focused on capital spending and growing their businesses.” Inflation and interest rates Over three-quarters of CFOs (78%) expect inflation to exceed 2.5% in two-years’ time – the highest reading on record*. Meanwhile more than half (53%) expect inflation to settle between 2.5% and 3.5% in two-years’ time and a quarter expect it to remain above 3.5%. CFOs expect interest rates to rise substantially over the next 12 months. On average, they expect the Bank of England’s base rate to be 1.5% in a year’s time, double its present level of 0.75%, but below current financial market expectations. Labour shortages, recruitment difficulties and supply chains Just over a third (35%) of finance leaders report that their businesses have faced significant or severe recruitment difficulties in Q1 – a slight improvement from Q4 2021 (46%). CFOs anticipate labour shortages will persist, with around one in four saying these will be significant or severe in a year’s time. In Q1, more than a quarter of CFOs reported significant or severe levels of supply chain disruption. A modest improvement in conditions is expected, with one in six CFOs anticipating similar levels of disruption in a year’s time. Richard Houston, senior partner and CEO of Deloitte, comments: “It’s clear that businesses are operating in an increasingly uncertain and challenging economic and geopolitical environment. “However, CFOs are not reporting a widescale shift to defensive strategies, such as cost cutting, seen at the beginning of the pandemic. Introducing new products, services or entering new markets remain the top balance sheet priorities. This continued focus on investment will be vital for resilience moving forward.”

Increasing energy bills or the overall rising costs of living are the biggest challenges facing almost half (47%) of businesses in the next six months, according to new research by accountancy and business advisory firm, BDO. The bi-monthly survey of 500 leaders of medium-sized businesses reveals a third will increase the price of their goods and services in response to rising costs. Retail and wholesale businesses have been particularly hard hit, with 39% planning an increase in prices. Meanwhile, rising costs mean almost a third (30%) of businesses are planning to reduce the number of goods and services they offer, as a result of these products becoming less profitable. 29% are switching to cheaper suppliers to reduce costs. Warnings from the Office for Budget Responsibility that inflation could reach close to 9% in 2022 are also giving serious cause for concern, with almost two thirds of mid-sized business (59%) having only planned for an inflation rate of 3-5% this year. As a direct result of rising inflation almost a third (31%) are seeking additional finance, rising to two-fifths (42%) of hospitality and leisure businesses and 36% for retail and wholesale – all industries that have already been hard hit by COVID-19. Even as analysts predict further hikes in interest rates, 29% of businesses are using new or existing overdraft facilities, with a quarter (24%) taking on higher levels of debt to ensure their survival. Recruitment is another area that threatens to derail growth. More than a quarter of businesses (26%) said finding staff with the right skills is their biggest challenge over the next six months. 24% of businesses are most worried about the cost of hiring and with competition for talent fierce, a fifth (19%) see retaining employees as their biggest challenge this year. Almost a third (30%) are increasing wages in an effort to support staff through the cost-of-living crisis. Ed Dwan, partner at BDO commented: “This is a deeply concerning time for the UK businesses, with inflation and global uncertainty all threatening to stifle the post-pandemic recovery. “The large number of businesses taking on new or increased debt piles in a period of mounting inflation is testament to the challenges they face, and the hike in National Insurance this month could prove a tipping point for many in the midst of the cost-of-living crisis. “These businesses are the engine of the economy and their concerns should not be overlooked. As part of its levelling-up agenda, the Government should consider introducing more targeted policies that encourage investment and drive growth for the UK’s medium-sized businesses.”

Most people tend to think that starting a business is the hardest part; once the business is launched it is all smooth sailing from there, but that is not necessarily the case. You need to take steps to safeguard the future of your business. Simply keeping a business afloat is hard work, let alone making a profit. To ensure that your business has a future, you need to do your best to be flexible and develop your critical thinking skills, so let’s get into it. Invest in Yourself While you obviously cannot do everything yourself, as a business owner, there are a lot of things that you have control over which can help to secure your business’s future. First and foremost, you need to do your best to work on your organisational skills. Realistically, you are the one that is responsible for staying on top of everything. It falls to you as the person in charge to make sure that everything is done. In that respect, how well you are able to organise yourself directly affects the success of your business. There are several methods that you can use to stay organised, like to-do lists or tracking programmes. You also need to stay up to date with industry standards and relevant legislation that could affect your business. In order to ensure that you are properly prepared to run your business and maintain its success in the long term, you need to be willing to work on yourself. As your business grows, its demands on you might change too. Luckily, the internet is an amazing resource. You can find no end of articles and blog posts to further your knowledge and provide you with insights. That being said, it might be better for your business for you to learn these things first-hand. There is a huge range of courses online which can help to arm you with the knowledge that you need to protect the future of your business. Think about areas in which you might be lacking; for example, if running the finances for your business is new to you, then maybe a managerial finance course might benefit you. If you do decide to do a course, then you need to think about the reputation and accreditations of the provider; for example, LSE is a world-renowned institution whose online certificate courses could prove invaluable to your business. Above all else, you need to always maintain your focus. It is highly unlikely that your business will be an overnight success, and managing a business is a long-term endeavour. You need to be able to keep an eye on the long-term goals of your business instead of simply thinking of the short term. A work-life balance is important because it can help you avoid burning out. By working on your time management skills, coming up with goals and developing strategies that will help you to reach them, you should be able to strike a balance. Remember that Your Staff are an Asset – Use Them Most business owners aim to grow their business, and to do this; you need employees. The truth is that your employees can be one of your greatest assets, and you need to treat them as such. In order to ensure that your employees are prepared for the increasing demands of the business, you need to continually be looking for ways to increase their skill set. However, let’s not get ahead of ourselves. You first need to reevaluate your recruitment process. For example, while hiring university graduates or promoting internally might seem like the best practice, you might be unknowingly limiting the skillset of your employees. Instead, you might want to rethink your screening process. In doing so, you might find that your business benefits from applicants with transferable skills or experience that can be of use. When you put the work into training your staff and improving their skill set, it communicates to the staff that they are appreciated and valued. This in itself can help to boost morale within your employees. Ensuring that they are kept up to date with industry developments simply makes good business sense, and it can help your strategies and the way in which your staff work. It is all about doing your best to encourage your employees to always produce your best work. Monitor Your Competition A little healthy competition can work wonders for your business; it forces you to work harder, to find your niche and strive for success. In all honesty, your competitors can prove to be an incredibly useful tool if utilised properly that can provide you with a number of advantages. If you want to ensure that your business has a chance at long-term success, then you need to use them. When you have a better idea of your competitors, you can do your best to differentiate your business from theirs to make your business more unique and, therefore, more appealing to consumers. Do your research and learn from their mistakes so that you may avoid falling into the same pitfalls. Then, find ways to use their successful strategies to your advantage. This isn’t to say that you should copy them directly but find ways to personalise them for your business. Cater to Your Consumers This might sound obvious, but it is worth going over in more detail. As a business, you should always strive to deliver an excellent service to your consumers. Customer service is an integral part of any business. A business can only succeed if it has customers who are willing to pay for the products or services that they offer. Prioritising customer satisfaction is one of the ways to guarantee that your business has a future. You should always pride yourself on the service that you provide to your consumers. Often it is one of the defining factors that you can use to set your business apart from your competitors. To put it simply, consistency is key. It can help you to build a reputation that your customers will want to benefit from. Everything you do needs to be geared towards your consumers, from the products that you sell to your marketing methods. Do you have a good idea of who your target audience is? It is not sustainable to try and appeal to everyone; after all, it is a waste of your time and resources. To streamline your process, you need to have a good idea as to who your business appeals to. Your knowledge of your audience translates directly to the long-term success of your business; you need to put the work in to get to know them so that you can be sure to consistently meet and exceed their expectations. To Conclude If you want to ensure the future of your business, then you need to work on adopting a few of the habits and considerations listed above. They will help you to arm yourself with the knowledge that you need to guard your business, retain and encourage your staff, as well as grow your consumer base. In all honesty, a significant number of fledgling businesses won’t survive for more than ten years. Building a business and maintaining it long-term is a challenge; make no mistake but taking on board the above advice can help to alleviate some of the anxiety and allow you to anticipate the changing needs of your business.