SURVEY: Mid-market businesses looking to cut costs in wrong places amid economic downturn
Despite confidence in their abilities to withstand an anticipated recession, sizable majority are reconsidering their insurance policies to save money without considering the bigger picture
- Most middle-market business owners expect a recession soon and many are convinced their businesses can endure the turmoil according to the latest Nationwide Agency Forward survey.
- Despite this confidence owners still want to cut costs, with 40% of business owners having explored areas to cut expenses within the last 6 months.
- Some are eyeing workforce changes, such as decreased hours and paused hiring, to ease the financial strain.
- For an astounding percentage of business owners (82%), expense cuts could come at the cost of their current insurance coverage.
The economy is not rebounding the way business owners had hoped as we come out of the COVID pandemic. While inflation and rising costs continue to put a financial strain on operations, they anticipate more financial woes on the horizon – but not necessarily for their business. A recent Agency Forward survey from Nationwide reveals that 66% of middle market business owners expect a recession in the next six months.
Although they are concerned, business owners are content with current performance.
While a majority expect the U.S. to be in a recession within the next six months, nearly the same amount believe their business is prepared to manage it (65%). Over half of middle-market business owners say current business conditions are strong in the U.S. (58%) and in their own region or city (64%) compared to only 27% and 36% of small business owners, respectively. And about 3 in 4 (74%) would rate the conditions of their business specifically as being good or excellent.
The survey also revealed middle-market business revenue performance and projections:
- Less than 1 in 5 (19%) say their business revenue has decreased over the past 6 months.
- 60% report their business revenue increased over the past six months, and 62% expect it to increase within the next 6 months.
Despite their optimism, middle-market business owners want to save in the event their predictions might not be right.
Recently, 40% of middle-market business owners have looked for ways to cut expenses, which include a pause in hiring (33%), using personal savings to support the business (28%), or cancelling/postponing a major business investment (28%). Of those who have not yet taken any action, plans vary on what they might do to support their business over the next 6 months. While 40% plan to hire new workers, many are considering asking more out of current workers to manage expenses (29%), furloughing workers or reducing hours (25%) or even laying off workers (25%).
“As business owners review their balance sheet, they should think about what line items could have a long-term impact before making a change or cut,” said Linda Stueber, Senior Vice President, Middle Market Commercial at Nationwide. “The wrong move could jeopardize much more than their bottom line.”
Majority are open to cutting insurance coverage, but at what cost?
Of those who currently work with an insurance agent to manage their business’s insurance needs (70%), only 30% have contacted their agent in the past 6 months to discuss their coverage, and a similar proportion have increased coverage/limits on their existing insurance policies (32%). However, while many have added to their policies, this behavior may change in the near future. Over 3 in 4 (82%) mid-market business owners say they would be at least somewhat likely to decrease their business's current insurance coverage or limits as a way of reducing operating expenses if the country entered a recession in the coming months.
While cutting back on insurance coverages may seem like an easy way to reduce expenses, it could have lasting financial impacts. For example, reducing property coverage limits at a time where property values are increasing due to inflation could leave a business with insufficient funds to rebuild after a covered loss.
“What’s worrisome is the number of business owners who have not reached out to their agent to discuss their coverage, yet they are somewhat likely to decrease their limits” said Stueber. “This is a really important step in changing any commercial policy. An agent can review all potential impacts around a change so a business owner can make an informed decision about updating their policy.”
Survey Methodology: Nationwide partnered with Edelman Data & Intelligence to conduct a 15-minute national online survey of 401 small business owners, defined as sole or part owners of companies with 1-50 employees and less than $10 million in annual revenue, and 302 middle-market business owners, defined as sole or part owners of companies with 51-500 employees or $10 million - $500 million in annual revenue. The small business owner survey was fielded from September 6 – 19, 2022 and the middle-market business owner survey was fielded from September 29- October 11, 2022. As a member in good standing with The Insights Association as well as ESOMAR Edelman Data & Intelligence conducts all research in accordance with local, national and international laws as well as in line with all Market Research Standards and Guidelines.