TNS Survey Finds 70 Percent of Mid-Sized Businesses Aggressively Cutting Costs in the Wake of Credit Restrictions
New York – October 15, 2008 – TNS, a world leader in market insight and information, today released survey results from its Commercial Banking Momentum Monitor program. This program polls owners, leaders and senior financial executives at small and mid-sized businesses (annual revenues of $3MM to $2B) across all sectors.
Senior financial executives are anticipating challenging times to continue, as only 11 percent are confident that the government bailout plan will help to stabilize the financial markets. While today 40 percent said that the number one challenge facing their business is a reduced demand for products and services, the credit freeze is cited as the key driver affecting their business outlook. Consequentially, 31% of mid sized businesses are currently looking to reduce labor costs.
Focus During Turbulent Economy
Nearly all, 94 percent, of senior financial executives and mid-sized companies admit that their business faces one of several potential challenges in the coming months. The most immediate concern is the direct impact of reduced demand and tighter margins:
- 41 percent feel reduced demand for products and services is likely to have the largest negative impact on their business in the next six months
- 31 percent cite reduced margins due to inflation and higher operating costs as having the greatest impact
- 22 percent feel that tighter requirements for obtaining credit or the higher costs of obtaining credit are going to have the highest negative impact in the next six months
“Many middle market executives are telling us new credit restrictions will prevent their company from growing and competing. Right now, they are depending on long-established bank relationships to ensure their access to credit, but many are finding tougher terms for new borrowing. Many are steeling themselves for a reduction in credit lines and reduced cash flow as customer demand subsidies,” said Maria Erickson, SVP TNS Financial Services Practice.
Downsizing and Aggressive Cost Cutting
In response to tightening credit nearly 70 percent of mid-sized companies are actively seeking ways to reduce expenditures and over 30 percent focusing on payroll reductions:
- 69 percent say that their companies are aggressively seeking ways to reduce expenses. The smaller businesses (annual revenues of $3MM-$15MM) are particularly likely to be reducing expenses (77 percent)
- 31 percent of mid-sized companies are looking to reduce labor costs by reducing work hours, outsourcing jobs and offering early retirement or staff layoffs. Of companies polled, the larger mid-sized companies ($15MM-$2B) are most likely to be reducing labor costs (35 percent)
Government Bailout
There is a great deal of uncertainty amongst financial executives about whether a government bailout can succeed in stabilizing markets.
- Only 11 percent say that they are confident that the government bailout will help to stabilize the financial markets
- 42 percent are certain that the bailout ‘will not help’ to stabilize the markets
Longer Term Impact of Restricted Access to Credit
Perception amongst financial executives is that banks are already less willing to extend credit. Ratings of all banks on willingness to extend credit have trended from 63 percent in Q1 to 63 percent in Q2 to 43 percent in Q3.
30 percent have changed their debt position as a result of this crisis. This is especially true for the smaller businesses (40 percent). A third of those who have sought new sources of credit in the past three months have said it was harder to get the loan and that the process was more time consuming.
About Momentum Monitor and The Bank Advisory Board
The Commercial Banking Momentum Monitor (CBMM) is an ongoing, dynamic research study of mid-sized companies (US based Middle Market companies with revenues $3MM-$2B) across a variety of sectors. TNS is undertaking this program on behalf of major US financial institutions. The program explores a wide range of topics of concern to company financial decision-makers.
The Bank Advisory Board is a select online community of company financial decision-makers managed and operated by TNS as part of the CBMM program. Membership is by invitation only. This latest survey was a Bank Advisory Board poll fielded September 26th – October 6th and with 163 respondents.
About TNS
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