Increased costs, a tough labour market and rising inflation challenge business leaders

Published by Andrew Griggs on 19 May 2022

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We were headline sponsors, alongside Brachers, for the Kent Business Forum luncheon at the annual Business Vision Live 2022. Top of the agenda for the region’s business leaders were labour shortages, soaring inflation and managing continuing change.

The luncheon, hosted by BBC Breakfast reporter Ben Thompson, challenged business leaders to tackle the three big issues and explore, alongside our hosts, how best those challenges could be addressed.

People and the great resignation

Worldwide media have been predicting what has been labelled ‘the great resignation’ whereby employees dissatisfied with their working lives would resign in large numbers looking for better pay or conditions.

Whilst Kent employers have not seen a mass resignation, there is significant movement and shortages in the labour market, driving up wages.

A survey of business leaders at Business Vision Live 2022 found that 79% of businesses are struggling to fill job vacancies and 86% of businesses have increased wages to attract and keep staff. Wage increases are not insignificant with 82% facing a 25% increase in wage bills.

The survey also found that 68% of businesses did not have any form of employee incentive programme.

Sam Jones, Corporate Tax Director comments:

“Recruiting and retaining talent is a key issue for many businesses. Salaries are increasing and businesses are struggling to fill vacancies. The competition for talent is fierce. Businesses with strong benefits and incentive programmes will find it easier to attract and retain key members of staff.

Share options are a way of rewarding key employees by providing them with the opportunity to purchase shares in the company, typically at a discounted price. Being a shareholder in the company, your key employees can benefit from any increase in the value of the company as it grows. The current competitive market is forcing employers to look at alternative routes to retain talent.”

Along with incentives, purpose is powerful, we’re in the era of why. It’s not about what you do or how you do it, but about why you do it. People want to work for, buy from and invest in businesses that they believe in. Businesses that they know care about making a difference and share the same values.

When people in your business are aligned to and inspired by the business purpose, the benefits are immeasurable. Leading with purpose also helps customers and employees understand the business ethos and whether it aligns with their own principles. Customers and clients view purpose-led organisations as more caring, fostering greater loyalty.

Soaring inflation

Inflation is at its highest level for over four decades and is predicted to increase further. Rapidly increasing energy costs as a result of Covid pandemic and conflict in Ukraine are largely to blame, with constrained supply chains adding further challenges.

Our survey of business leaders found that 92% of businesses are facing increased costs, with 82% of businesses reporting increases of up to 25%. 64% of business leaders intend to pass on those increased costs to their customers.

More worryingly, however, is the impact this is expected to have on profitability. 75% of businesses expect profitability to fall, with 64% expecting profits to be up to 25% lower this year;

Andrew Tate, Partner and Head of Restructuring and Transformation comments:

“Businesses are facing increasing costs and soaring inflation. Simply passing those costs on to customers cannot always be the answer. It is paramount, especially now, that business owners need to understand the costs facing a business and their impact today and in the future. Forecasting and scenario planning different economic and trading conditions that aid better informed decisions is key to surviving uncertainty.

We have specialist teams that work alongside business leaders to explore how technology can transform key functions within a business, where the investment in people is needed, and where the business needs to be transformed and recalibrated. And we have a dedicated team of restructuring specialists that can help turn around troubled businesses.”

Now is the time for businesses to rethink and look towards building a business for the next decade. That will mean addressing immediate challenges and, in the longer term, recalibrating business models. A ‘whole business’ view and an investment mindset is needed to build tomorrow’s business.

Labour, energy, property and logistics will typically represent the largest overheads facing a business. Those that have not already done so need to understand the impact of these costs now and in the near future. Look for quick wins and savings with impact.

Closely monitoring cost increases through solid management accounting and reporting is critical. In the mid-to longer-term businesses should look to more fundamental and structural change. Now is the time to bring an investment mindset to the business and recalibrate.

Managing change

Business leaders have proven adept to managing change and having to pivot at often short notice. No doubt, a period of stability and certainty was hoped for, but we are certain that businesses will embrace this latest period of uncertainty and once again adapt.

One aspect of change that will continue for the foreseeable future is the widespread adoption of hybrid working patterns. 75% of businesses are operating hybrid working arrangements with just 21% fully in the office or workplace.

Whilst certain politicians fear the impact hybrid working might have on productivity, a fifth (21%) of Kent business leaders report increased productivity. Just over a third (36%) say it has stayed the same and an equal number feel hybrid working has reduced productivity.

The productivity of the UK workforce has vexed economists and business leaders for decades and looks likely to do so for many years to come.

However, how this feeds into the county’s office market is perhaps a little unexpected. Almost a third (29%) report an expected increase to their office footprint in the next 12 months, with just 11% saying they will look to downsize on office space.

Andrew Griggs, Senior Partner says: “Businesses continue to face extraordinary challenges. Increasing costs and higher wages, driven by high inflation, will have a detrimental effect on cashflow and profitability and business leaders need to prepare for that.

“Businesses with a strong purpose that put people and profit on an equal footing, investing and building for tomorrow, are likely to emerge from this current economic cycle in a strong position ready to capitalise on future growth.”

For more information about the topic related in this article, contact us here

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