Sector trends & challenges
There have been operational impacts seen across the sector, however there are significant variations by location and subsector. We might see an increase in insourcing, so businesses have greater control over outputs and costs.
Inherent competition in the sector has been exacerbated by impacts of the pandemic. Downward pressure is being exerted on margins. Further cost increases could lead to sector consolidation in order to support overhead reduction.
Debt & liquidity
Businesses should review external contracts to identify savings in order to manage liquidity. Stretching of payment terms may create working capital challenges for those businesses who do not manage their cash flow optimally.
Sector rating profile
A recurring concern for business service providers is how they manage financing high debt levels, limited liquidity combined with lower returns from contracts, and the impact of COVID-19 and regulatory changes. As the economy recovers from the pandemic the need for business services is starting to gather momentum, however managing liquidity in the short-term will be crucial for long-term success.
There have been operational impacts seen across the sector, however there are significant variations by location and type of work. Recruitment for permanent roles for example has been heavily impacted, whereas we are seeing a potential uptick in temporary labour recruitment within certain sectors. Intense competition is common across the entire sector which is exerting a downward pressure on margins. Likewise increased costs, in the form of an increase in national minimum wage, the apprenticeship levy, and workplace pension minimums is also putting a strain on working capital and liquidity.
Businesses are likely to review external contracts to identify savings, in order to manage liquidity and protect margins. Stretching of payment terms may create working capital challenges for those businesses who do not manage their payment cycles optimally. We might see some insourcing across the sector in order for businesses to retain greater control over outputs and costs. Sector consolidation may be required to support overhead reduction and cash flows in order for businesses to be able to capitalise on the growth recovery.
An accelerated transition to digital operations might adversely impact some outsourced services such as call centres. As we move out of the pandemic, we will likely start to see an impact on outsourcing activity across both the public and private sectors. Although a trade deal was agreed, the Brexit fallout will still be felt in the form of a skills shortage which may become more pronounced as COVID-19continues to hinder international travel during 2021.
Find Your Expert
Rick Harrison is Interpath Sector Lead for Services which includes Business Services as one of two core segments. Beatriz Miguez Armada leads Interpath's approach to the Business Services sector nationally. For a full list of our senior people with experience in this sector use the button below.Our senior team