East Midlands businesses are doing better than those in the West Midlands according to accountancy and business advisory firm BDO – but are still doing worse than the national average.
A new league table drawn up by the firm suggests businesses in towns and cities such as Leicester, Loughborough, Nottingham, Derby and Mansfield are reporting higher profitability than West Midlands ones.
The study of 220,000 UK businesses suggests the average profit margin of UK businesses is 6.7%. The figure 4.9 per cent in the East Midlands and 2.8 per cent in the West Midlands.
Businesses in London lead the way with average profit margins of 8.7 per cent, boosted by the financial services sector.
BDO said: “Lower average profit margins in the West Midlands is likely a result of the manufacturing sector, one of the West Midlands’ biggest industries, having a relatively low average profit margin of 3.1 per cent.
“However, prospects for the region’s technology industry, with average profit margins of 8.9 per cent are much brighter.
“Tech businesses are projected to employ 84,000 people and add £7 billion in GVA in the West Midlands by 2025 – which would be an increase of 20 per cent by 2015.
“The East Midlands looks poised for profitability growth post-pandemic. The region’s strong real estate and construction sectors report average profit margins of 16% and 12.7 per cent respectively.
“However, both industries have been hit hard by the pandemic, with repeated lockdowns and supply chain disruption affecting construction projects and retail property landlords experiencing a rise in unpaid rent.”
Suk Aulak, business services and outsourcing partner at BDO, said: “The last 18 months has brought a myriad of challenges for businesses, not least of which a global pandemic and Brexit uncertainties.
“The ‘levelling up’ agenda is central to what the Government wants to achieve, however there is a real difference in the type of businesses that survive and thrive in each region.
“The recovery from the pandemic is the perfect opportunity for targeted policies and investments to make a big impact on regional economies and support the overall recovery of the UK.
“As businesses look ahead to their post-pandemic recovery and growth, they should be considering how to maximise profitability.
“Driving down costs like rent and utilities, increasing sales from existing customers and minimising the holding of unnecessary stock are steps that should be automatic.
“Beyond that, incentivising sales staff on the basis of margin rather than volume and an increased focus on improving governance can have an impact on profitability in the longer term.”
