3 months ago
Since the beginning of the global pandemic, businesses have been met with obstacle after obstacle. It’s becoming increasingly difficult for companies to survive amongst the cost of living crisis, inflation and soaring energy costs. But how much has this impacted how firms invest and their overall investment plans moving forward?
To uncover more about business investing strategies and how these have been affected by the global financial situation, we at BusinessComparison surveyed over 500 business leaders and senior decision-makers across the UK. We quizzed them on how much they reinvest, how these funds are secured and whether this has been affected by the current global financial crisis.
It’s no secret that businesses all over the world have continued to feel the aftermath of soaring energy prices and inflation. Other aspects, such as the cost of living crisis, are also having a dramatic impact on companies - as consumers are being left with less than ever to spend.
It leads to the question, are businesses, particularly in the UK, continuing to reinvest their profits? Our survey revealed that, in total, 53% of business leaders state that they do reinvest on an annual basis.
Additionally, 19% shared that they do invest - depending on profits, while a further 11% of business leaders reinvest in their business, but not on a yearly basis.
Regionally, the North West (67%) and Greater London (66%) had the highest response to investing on a yearly basis. On the other hand, 17% of businesses in the East Midlands and 14% in Northern Ireland revealed that while their company does make profits, they don’t reinvest them.
It was interesting to discover that younger business leaders seemed more likely to invest profits back into their businesses, according to the survey results. In fact, 60% of those aged 18-24 years old stated they invest on a yearly basis, compared to just 25% of those 55 and over.
Unfortunately, 7% of business leaders surveyed revealed that their business never has the profits needed to reinvest. With so much financial uncertainty, many companies will be focusing on how they can protect themselves against the challenges currently posed.
So, with 53% of businesses stating there is some annual investment, how are these funds spent within the business?
The most common response was the purchase of new equipment, with over half of business leaders sharing this as a go-to reinvestment activity (58%).
Additionally, 50% stated that they invest in marketing or advertising campaigns, while 43% used the money to further train their staff. Elsewhere, 32% of companies reinvested their funds by putting steps in place to make their businesses self-sustainable.
Age data revealed that 25-34-year-old business leaders and senior decision-makers were the most likely to spend reinvested funds on purchasing a business property. This starkly contrasted those aged 55 and over - with only 9% of this age group opting to spend their money on new buildings.
The older generation (55 and over) prioritised reinvesting funds in purchasing new equipment and technology (79%). Furthermore, 39% of the same age group focused on putting steps in place for self-sustainability.
The East of England was the region focusing the most on self-sustainability, with 47% of business leaders and decision-makers in this area putting steps in place with reinvested funds.
By far, for all age groups and regions, purchasing new equipment and technology was the number one way businesses reinvest their profits or excess funds. It makes sense when you consider the evolution of business tools can help streamline the ways companies operate, which, in turn, can lead to an increase in profits down the line.
Now that we know that a large majority of businesses are continuing to reinvest, in some way or another, just how much are they investing? Our survey aimed to explore the percentage of profits being pumped straight back into business operations.
When asked about the percentage of profits that are reinvested, the average amount reinvested by companies was 37%. Overall, the most popular response was 11%-20%, with 23% of people surveyed answering with this option. Furthermore, one-fifth of
business leaders or senior decision-makers stated that they reinvest 21%-30% of profits.
Demographical data again highlighted a trend of younger business owners investing more of their profits. 18 to 24-year-olds invested 41% of funds on average compared to 27% from those surveyed aged 55 and above.
Whether it’s experience or shrewd business decisions, the older generation seems to have a tighter grasp on their finances and is prepared to hold more money back instead of reinvesting right away.
Regional data revealed the East of England as the biggest reinvestors, pumping 44% of profits back into the company on average. The lowest was the South East region, with an average reinvestment of 28% of profits.
While it’s encouraging to see some areas of the UK continue to invest healthy chunks of their profits directly into their operations, it’s clear that not every company has the privileged position of spending these vital funds.
The problems faced by businesses have led to many reevaluating the way they operate - including reinvestment plans. When quizzed on whether global circumstances have caused reinvestment strategies to be affected - a massive 57% revealed that they had.
This includes 55% of businesses that shared they have continued to reinvest, but the amount has decreased due to the current global situation. Moreover, 2% have had to cut investing altogether until the circumstances have been resolved.
It’s clear that factors such as the cost of living, inflation and energy costs are causing many companies to cut back on funds that could potentially lead to business growth. These financial worries are leading to businesses holding back funds as they opt to prioritise survival during this troubling period.
It was intriguing to learn that 57% of businesses in Northern Ireland shared that their investment plans had continued as normal - including 63% of companies surveyed from Belfast.
The worst affected region was the West Midlands, with 67% of business leaders and decision-makers sharing that their reinvestment plans had been altered due to the global crisis.
Reinvesting can play a major part in the success of a business, with continued funding allowing companies to increase revenue. However, the global situation has forced business leaders and senior decision-makers to become more frugal with funds, as energy bills and the cost of living have a detrimental effect on profits.
With the possibility of business closure threatening firms in all types of industries, reinvestment may not be viewed as the current most crucial factor to business leaders. Despite this, it remains one of the most effective methods of driving further growth.
To find out more, we asked survey respondents how they view investment regarding maintaining success and profitability. Overall, 44% stated that reinvesting is vital to maintain the successful growth of the business - including 51% of male survey respondents (compared to 36% of women surveyed).
55% of East England and 54% of Greater London were also of this opinion, while age data highlighted 47% of 25-34-year-olds shared the same belief.
Additionally, while 41% responded that reinvesting is important, they don’t believe it to be the most significant factor in maintaining the successful growth of a business.
Overall, only 11% believe that reinvestment holds no influence over maintaining business growth. Older generations tended to hold this opinion more - with 18% of those aged 55 feeling this way, compared to 4% of 18-24-year-olds.
Analysing specific regions revealed that 29% of Northern Irish survey respondents also consider reinvestment to not influence profitability, while 14% of those in Wales believe bigger factors determine whether to reinvest profits or excess funds.
So, with the global circumstances increasing the financial pressure felt within businesses, many companies are having to source investment funds from elsewhere - as profits decrease or are prioritised for other aspects of the daily operations.
We questioned business leaders and senior decision-makers to explore how they secure funds. Intriguingly, the top method was business loans - with 35% of respondents saying they use them, closely followed by funding through stakeholders (34%) and director's funds (33%).
Other popular options included business grants (32%) and third-party investment (27%), while 19% shared that they don’t secure reinvestment funds outside of profits.
It was revealed that 41% of businesses operating in the city of London are currently relying on business loans to maintain investment strategies. Regionally, Greater London was the most likely to receive investment from a third-party (35%), with 53% of business leaders in Nottingham choosing business grants as their primary source of investment - outside of profits.
Age-wise, only 15% of those 55 and over secure finances through business loans - compared to 51% of 25-34-year-olds and 36% of 35-44-year-olds.
Our survey has provided valuable insight into the plans and opinions of business leaders and senior decision-makers surrounding reinvestment. In the current global circumstances, it’s understandable to learn that many businesses have had to pause or reduce the level of profits and excess funds being pumped back into their company.
The constantly fluctuating interest rates will cause further headaches for businesses, as borrowing money is not as financially viable as it once was. It’s clear that the increased financial strain - created by aspects such as inflation and the cost of living crisis, has had a detrimental effect on reinvestment plans.
We commissioned a survey by CensusWide of 508 business owners and senior decision-makers aged 18 and over from the UK on the topic of reinvesting in business. The survey took place between 19th May and 23rd May 2023.