AI is helping North West mid-market businesses become more efficient but not necessarily more profitable, according to new research from FRP Advisory.

The business advisory firm surveyed 250 senior executives at UK mid-market businesses, with the findings suggesting AI is raising the standard of service customers expect, while putting more pressure on businesses to ensure those efficiencies are also improving margins and cash flow.

Among the North West businesses surveyed, nearly three-quarters (72%) said that AI had increased pressure on their organisation to deliver more for the same price. Customer expectations are also rising, with almost two-thirds (64%) reporting increased demand for round-the-clock or near-instant responses, while 44% cited greater expectations of lower prices.

Businesses are still seeing the benefits of the technology, with almost two-thirds (62%) of the region’s respondents stating that AI had primarily produced faster customer delivery. However, only 41% reported improved margins, indicating that the AI dividend is showing up more clearly in service delivery than on the bottom line.

A third (33%) say efficiencies have been absorbed by greater workload or operational complexity, while 26% report that they have been offset by rising costs elsewhere.

Luke Wilson, Partner in FRP’s Restructuring Advisory team, said: “North West businesses are seeing real benefits from AI, particularly in the speed at which they can serve customers - but it’s important to recognise that becoming faster is not necessarily the same as becoming financially stronger.

“If customers quickly come to expect faster responses and more output for the same price, businesses can find themselves investing more simply to stand still. This risks creating a dangerous cycle, where each improvement raises the standard customers expect, prompting further investment, while added costs and complexity absorb the benefits before they reach margins and cash flow.”

FRP’s research also examined how funders are assessing AI investment. In a separate survey of 251 UK lenders and investors, including 28 North West respondents, 54% said seeing AI benefits reflected in forecasts and cash flow would give them confidence that a borrower’s strategy was commercially credible.

The same proportion said weak AI readiness or poor delivery of anticipated benefits could affect pricing or margins on lending. Cost control was a particular concern, with 57% saying AI investment costs exceeding plan would prompt them to encourage a borrower to seek external advice.

Luke Wilson added: “Lenders don’t expect management teams to predict every consequence of AI investment, but they will expect financial discipline. Where anticipated efficiencies underpin forecasts, businesses need to demonstrate the costs involved, when benefits should materialise and how those benefits will strengthen margins and cash flow.

“They must also be prepared to explain what happens if costs rise or returns take longer than expected. Businesses that can provide that evidence, alongside a credible plan for responding to underperformance, will be best placed to maintain lender confidence.”