-
A woman working. COVID has revolutionized the professional sector moves such as remote working

Still plenty of positives ahead for Business and Professional Services firms

James Morris is cautiously optimistic about the sector’s prospects for 2023 despite recessionary pressures.

James Morris

Head of Business and Professional Services, Barclays Corporate Banking

A look back at 2022

The economy returning to a level of post-pandemic normality at the start of 2022 was good news for all our clients in the Business and Professional Services (BPS) sector.

The services bounce back, fuelled in part by a backlog of work caused by Covid-19, was perhaps not as pronounced as in other parts of the economy – while many advisory firms performed well during the pandemic, other industries ground to a halt because of lockdown restrictions.

Recruitment services firms, for example, were boosted as the wider economy opened up in 2022, while the reoccupation and repurposing of commercial space of course benefitted property services providers.

We saw pent up demand in the legal services space, which meant lawyers could opt to take on additional paid caseload to create more income, demonstrating a continued, gradual trend towards more performance-related pay and bonuses within firms.

However, rapidly rising inflation and the cost-of-living crisis that engulfed the UK in the second half of 2022 dented sector confidence – as well as exacerbating the pre-existing challenge of wage inflation at many firms, particularly in the legal sector.

Not immune from recessionary pressures

Looking to 2023 – Business and Professional Services won’t be immune from the recessionary pressures affecting the wider UK economy, but I think most firms should be able to ride out the storm.  

Any decline in the property market will of course impact estate agents and property services providers, but lawyers and accountants should still find they’re in high demand for services ranging from company insolvency and liquidation to helping to cut the continuing backlog in conveyancing work. 

Nonetheless, with so much uncertainty about the economy, we’re seeing a changing attitude towards chasing new business. Firms are often deciding to focus on deepening their relationships with existing clients rather than investing in developing business with new ones. 

The ongoing ‘war for talent’ and spiralling wages will once again be a challenge for the sector in 2023. With downward pressure on fees rates from clients, I’m not sure these high salaries are sustainable, and I foresee a bit of a market correction in salaries over the next year or two. 

Meanwhile, the performance of accountancy firms will be in the spotlight in 2023 after the well-documented criticism of the ‘big four’ for lack of independence in their auditing services alongside their consulting, tax, and advisory work. Time will tell what impact this scrutiny has on the wider accountancy profession as a whole.

Fraud is a very different kind of challenge, and all types of firms are increasingly being targeted – a trend that’s likely to continue in 2023. Barclays is well placed to help our clients safeguard against this threat by keeping them up to date on the tactics employed by cyber crooks, including ever more sophisticated CEO impersonation and invoice fraud. Visit our Fraud Hub to learn more.

Rising energy prices

The latest Government energy support package will see the Price Cap removed at the end of March for businesses in England, Scotland and Wales, replaced by a new discount mechanism based on wholesale prices. All businesses are likely to see a rise in costs although energy-heavy sectors will see higher discounts available. In the short term, cash and profits could be impacted and some businesses may look to increase prices or reduce costs and energy consumption to try and maintain margins. 

Whilst investment in longer term solutions may hit corporates as an extra cost in the short term, it might also be imperative for businesses to look at how they can future-proof their running costs by developing a more sustainable/renewable approach to their energy consumption. With sustainability high on the agenda for many businesses, it is important that the cost of doing business does not overshadow this important transition. For projects with long-term sustainability at the core, sustainable financing may be a suitable option to support any immediate shortfall in cashflow.

A commitment to promote social mobility

It cannot have escaped anyone’s notice that the influence of the environmental, social and governance (ESG) agenda is growing. Firms that provide ESG consultation services are likely to be in demand, while all businesses should consider their ESG credentials to meet the changing expectations of clients and stakeholders.

While many firms still have work to do to cut their carbon footprint (and work with their supply chain to do the same), in a sector where people are the most significant asset, social goals are also an area where firms can have a strong impact. 

We are seeing firms continue to take steps to improve diversity, equity and inclusion (DE&I) and look closely at their hiring models be more inclusive and tackle bias, but we all recognise there is more work to be done to promote socio-economic diversity and encourage social mobility.

More diversity means firms can better represent their clients and benefit from greater diversity of ideas.

Digitalisation pros and cons

Digitalisation represents both the biggest opportunity and challenge for many services businesses. 

On the one hand, businesses stand to benefit from efficiencies in automating time-consuming processes, leaving professional staff free to better use their time and expertise to add value for clients. On the other hand, business that are too slow to adapt face falling victim to the many tech disruptor businesses that are making a success of meeting changing customer demands.

I do see more consolidation in the sector in 2023: some smaller companies will likely be acquired by bigger players because of the economic pressures, while some of the disruptors I’ve mentioned will be interested in M&A because of the opportunity to get the investment they need. Private equity is also taking a renewed interest in BPS – particularly in the property space.

Overall, I think there’s plenty of good commercial work to support the BPS sector in 2023, but I’m cautious not to ignore the recessionary backdrop. At the same time, clients across all areas of advisory services want an experience and a service they can rely on – it's all about trust and security and not about taking chances.

Firms with strong business models, robust balance sheets and good financial controls will do well and may meet their growth goals, but there may also be some tough times ahead. We are here to support our clients in the sector – whatever the future holds.

Read related insights

Business and Professional Services
Industry expertise

Business and Professional Services

Bringing Business and Professional Services into the spotlight with Big Picture Banking. We’re with you, no matter ‘watt’.