Will professional service businesses bounce back quickly enough to save the sector?
Everybody who does paid work considers themselves a professional to some extent – whether it’s building homes, serving food or writing blogs so what makes “professional services” different and special?
The official title of the standard industrial classification (SIC) grouping is for professional, scientific and technical activities which specifies the activities of these businesses a little more clearly.
The sector includes sole traders, partnerships and limited liability companies that work in fields such as legal, accountancy, architecture, scientific research, advertising, management consultants and even veterinary services are included.
While the nature of their businesses might vary greatly, they will all have faced similar challenges to overcome in the previous 18 months.
So how are professional services faring in the post covid economy?
While the construction, hospitality and retail industries took a lot of oxygen and headlines about how the pandemic was affecting them – professional services businesses were also fighting their own battles to stay afloat too.
Since the first UK-wide lockdowns and enforced trading suspensions were implemented in March 2020, 1,351 professional services businesses have become insolvent (537 in 2021 alone) – which is more than 25 every week.
To put this in context, that’s nearly as many as the hospitality (1,378) and retail (1,355) industries without any of the associated attention of publicity.
One reason why is because the nature of the businesses are so disparate, it’s hard for the sector to speak with a unified voice.
Takeaways and fine dining restaurants have a lot of differences and cater for different clientele and markets but their interests can be effectively lobbied for by the same influential groups such as UKHospitality.
A marketing agency and a vets surgery will have their own representation but are unable to combine their funding, focus and forces to raise as formidable defence as the retail and hospitality sectors defenders did.
One area where professional service providers were able to compete on an equal footing with other sectors was when it came to accessing coronavirus support measures such as bounce back loans and being able to avoid making staff redundant by furloughing them instead as part of the coronavirus job retention scheme (CJRS).
When it came to bounce back loan borrowing, the professional services sector took out the third highest number of loans – nearly 160,000 – and after the retail and construction sectors, collectively borrowed the third highest total of £4.5 billion in support finance.
This works out at an average of £28,252 for every professional services business who was approved to access a bounce back loan.
Our research showed that under the various repayment scenarios it’s estimated that between £675 million and £2.7 billion might remain unpaid from this amount depending on the various circumstances facing the borrowers.
Now as accountants, business coaches and PR professionals begin to make up for lost time and hope to recover the ground lost during the previous 18 months, another potential problem looms on the horizon.
The end of September sees a confluence of rule changes coming together to spell trouble for unprepared professional service business owners and directors:
- Furlough ending
Employers with staff on furlough have already begun paying a greater contribution to their wages in August and September already but the entire scheme is ending on September 30th leaving businesses with potential tough decisions to make regarding staffing, rehiring and potential redundancies.
- Loan and debt repayments
Bounce back loan and CBILS repayments will already have begun for the majority of borrowers but those that obtained a six month delay to the repayments will see it end this month meaning that these debts will now come due. Additionally any VAT arrears incurred in 2020 are also due now.
- Creditor actions restart
Creditors have legally been restrained from seeking redress for owed debts since March 2020 meaning that statutory demands and winding up petitions for debts incurred during and as a result of the pandemic have been unable to be granted or enforced.
This ends on September 30th as does the suspension on termination clauses, which guarantee supplies to businesses and stop suppliers from asking for additional security or extra payments from businesses that enter administration or other restructuring procedures.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk thinks that professional service businesses such as marketing firms and architectural practices have a significant advantage that other sectors lack.
He said: “The entrepreneurial nature of the sector – whether it’s a design studio or established partnership – means that these businesses tend to be more agile than companies in other industries.
“This means that they can make decisions quicker and more importantly implement them to take advantage of changing circumstances that could affect them significantly.
“The various changes coming in at the end of the month will have serious repercussions for a lot of companies that don’t realise what’s about to happen or are unable to get impartial and professional advice to make the necessary choices and changes required.
“It’s the latter that will be best able to adapt to a potentially unfavourable outlook and protect their employees’ livelihoods as well as themselves.
One of the sad ironies that most professional service businesses understand is that when times get tough for their clients, they tend to be seen as some of the first expenditure that should be cut while they tighten their belts.
This often proves counterproductive because it’s the expertise and knowledge that they were hired for that would give the client a significant edge over competitors who would also look to cut back and grant them a competitive advantage at the very moment it’s most needed.
Every business in the professional services sector will have stories about clients acting in haste and repenting at leisure – so they should be able to take their own advice and act quickly and decisively when the circumstances demand action.
A business with bounce back loan and VAT arrears, CBILS or other borrowing might be able to sustain them today but this situation will change in less than four weeks.
We will listen and learn what challenges they’re facing and be able to provide options they can deploy, some immediately, that will either buy them valuable time to act or allow them to efficiently and properly begin to close an unviable business – even one with bounce back loans or other unmanageable debts.