The UK Professional Services sector isn’t necessarily enjoying the easy ride that observers in industries more directly hit by economic pressures might think it is. Major companies in some of those industries will have turned to external management consultants, accountants, tax specialists and law firms to help stabilise their businesses in the post-pandemic, high inflation environment. Now, with lower inflation, more stable energy prices and supply chains recovering, recent big buyers of professional services are cutting spend in that area. Many global advisory firms are planning to lower headcount.
PwC is seeing its weakest growth rate since 2009; it’s cutting graduate recruitment by a third over the next three years and shrinking existing headcount elsewhere. The other Big Four groups are all tightening their belts. S&P Global says the UK’s private sector has slowed to its weakest level since May. Passing on higher business costs have led to “subdued” demand and further job cuts.
The accounting and legal sectors, in many ways technical and rules-based in their approaches, are grappling with the prospect of Artificial Intelligence (AI) replacing some of their more ‘commoditised’ services. Engineers and architects may face similar challenges. Broad-based management consulting business are seeing unprecedented competition from sector-specialist boutiques which typically operate on a smaller scale, with fee invoices to match.
Others, however, are exposed to economic chill winds in different ways. ‘Modern’ Professional Services firms now include all manner of people-based businesses, with revenue models based largely on consulting fee income or commissions: marketing, public relations, recruitment, design and several disciplines that did not exist when the Magic Circle law firms or Big Four accountants began life as Victorian partnerships. The consulting arms of major accounting businesses have even begun to acquire advisory companies in these fields, advertising being a notable example, as they increasingly form part of the strategic advice offered to large clients.
The people-based, consulting revenue model brings with it financial features and associated challenges that are unusual in many other sectors: relatively low levels of borrowing; disproportionately high staff and office costs; a highly competitive market for income-generating senior practitioners; and client relationships that are often too closely linked to individuals, rather than to the firm itself.
In ‘new’ professional services, and at the SME end, in particular, barriers to entry for operators may be low, partly a result of fewer formal qualifications, lack of official regulation and debatable ‘professionalism’. Nonetheless, these and more established services share challenges of differentiation from their competitors and a need for regular reinvention to remain relevant to clients.
Faced with a generally tough economic environment for the foreseeable future, many consultancies are, understandably, chiefly focused on retaining existing billable work, keeping clients happy and running teams of staff. They might also, however, give some thought to getting expert help in futureproofing their businesses and keeping them on a safe footing.
Areas to consider range from important everyday issues, such as cashflow management, remuneration models and regulatory affairs, to taking bigger strategic steps on due diligence for acquisitions, merger integration, operational assessments or even dissolving partnerships.
It’s inevitable that sometimes busy practitioners are less than speedy in keeping their own houses in order. They are probably a stone’s throw from other, very relevant advisers who are well placed to understand the challenges, opportunities and complexities of owning, working within and managing a successful professional services business. Independence allows them to offer commercial insight and business sense that is sometimes a difficult area on which to focus. Even consultants need consultancy services.
Written by Runita Kholia, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.