UK business services must get in shape to benefit from weak pound

October 7, 2022

The prospect of relatively weak sterling for the foreseeable future inevitably leads optimists to spot good news for UK exporters.

“What could we export?” sceptics might cry, mindful of our shrinking manufacturing base. In reality, while overall imports outstripped exports last year, a great deal of goods made or assembled on these shores were still sold abroad, not least computer equipment, auto components and heavy machinery.

Unsurprisingly the UK is seen as a services-led economy these days and £126bn of ‘business services’ were sold by UK providers to overseas customers in the 12 months to March 2022. These are nothing to do with financial services or IT; they include accounting, law, management consulting and a huge variety of other advisory roles.

The industry sector named Professional Services no longer means firms of formally qualified advisers in areas clearly defined over generations. The changing needs of businesses and individuals in the 21st century has widened this sector considerably to include all sorts of people-based businesses, with revenue models based largely on consulting fee income or commissions. It also means that, despite consolidation creating giant firms of lawyers and accountants, diversity in services has brought a fragmentation and proliferation of smaller advisory or ‘agency’ businesses – marketing, public relations, recruitment, design and several disciplines that did not exist when the Magic Circle lawyers or Big Four accountants began life as Victorian partnerships.

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, in particular, barriers to entry for operators may be low, partly a result of fewer formal qualifications, lack of official regulation and debatable ‘professionalism’. For these reasons, such businesses are wrongly assumed to be low-risk and relatively easy to manage. In reality – especially in a weak economy – lack of heritage combined with somewhat elastic demand for their services compound perennial challenges of differentiation from competitors and a need for regular reinvention to appeal to clients.

Operationally and financially, SMEs in business services are just as capable as ‘old economy’ companies of getting into serious difficulties. Some problems are obvious, but remain unaddressed year after year: poor business development skills among practitioners who don’t like selling; the comfort zone of advisers who think they have enough clients; little or no formal mentoring or coaching; poor succession planning; unexecuted marketing plans. Ironically, these may even be some of the issues for which stricken services firms offer advice. The road to failure is then signposted by flaky or unenforceable contracts – if there are any at all – and metrics for success that are all too vague. These quickly translate into slow paying clients, poor cash flow and bad debts, usually with no asset backing in the business.

Turnarounds in business services are often possible when management is helped to focus more sharply, improve basic processes and secure better cash outcomes. Owners in these sectors easily forget they are business people as well as advisors to other business people. It’s rarely too late to ask for help, but the sooner existential problems are addressed, the easier it is to move forward successfully.

As a firm of practitioners ourselves, Buchler Phillips is well placed to understand the challenges, opportunities and complexities of owning, working within and managing a successful professional services business. Our independence allows us to offer commercial insight and business sense that is sometimes a difficult area on which to focus when practitioners are busy developing billable work, keeping clients happy and running teams of staff.

Our areas of work include:

  • Dissolving partnerships
  • Merger integration and operational assessments
  • Due diligence on acquisitions
  • Cashflow management
  • Staff retention and remuneration models
  • Support in regulatory and disciplinary affairs with professional and trade bodies
  • Succession planning

Written by David Buchler, Chairman of Buchler Phillips, the UK’s leading independent, corporate recovery, restructuring and turnaround boutique firm.

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