5 Trends Shaping the Focus of Professional Service CFOs in 2024

August 2024

Over the past year, we have seen a modest uptick in economic stability. Inflation and interest rates shows signs of improving however the economic landscape remains largely unchanged from previous years with persistent uncertainty, disruption, and slow growth continuing.

With these ongoing challenges in mind, a year on we asked Stuart Collins, BDO’s CFO, for his renewed insight into the five areas of focus for professional service firms in the current economic climate. As BDO reaches the £1bn revenue landmark, we ask him how he is now seeing the market trends that are pivotal for safeguarding the financial wellbeing of professional service firms.

Many of the challenges highlighted by Stuart last year continue to dominate the professional service sector. However, new considerations have emerged since, amid this protracted period of economic challenge

1. Navigating softening activity levels and sales growth

Professional services firms are grappling with significant challenges driven by another year of low market growth and subdued transaction activity. The pressing question is how long will this downturn persist? Businesses are eager to respond effectively to market conditions but are cautious about making decisions that could impact their long-term prospects.

Predicting the shift from a market trough to a peak is complex and varies by sector and business. While it is generally advisable for businesses to maintain consistency and carry the costs during downturns, this approach becomes unsustainable the longer the stagnation lasts. However, these periods present opportunities to streamline operations, reallocate resources, and invest in staff development. By enhancing tools and training, businesses can position themselves to capitalise on market shifts, ultimately driving profit and growth.  

But, despite these efforts, many firms in the sector are currently experiencing growth in revenue without a corresponding increase in profit.  There are various reasons for this including the recent period of high inflation, the continuing weakness of transactions markets and an apparent decline in staff productivity since the pandemic.  There are hopes that we will see improving conditions yet in the meantime is it best for growth to be sacrificed for profit?

2. Tackling productivity challenges

In times of low transaction and activity levels, the reduced amount of potential work can in turn affect productivity. Although the productivity puzzle remains unsolved, businesses throughout the UK continue in their efforts to address ongoing inefficiencies to tackle the issue of low productivity. The unique nature of each business, coupled with broader economic factors, makes this a daunting task. 

As Stuart raised last year, the legacy of COVID-19 and the transition to hybrid working continues to be a significant factor when considering productivity. With hybrid working the new norm, businesses must continue to actively manage this new working culture to ensure it enhances, rather than hinders, performance through regularly reviewing its impact and tailoring practices specific to the firm, staff needs and its culture to harness the benefits effectively.  This is an area of continued experiment. We are not going to back to how things were before and therefore must embrace the opportunities of new technologies to reimagine how we attract, retain and develop the best people within our businesses and deliver products and services to our clients.  Are you really facing up to this challenge?

3. Embracing technology and transformation

Digital transformation has been a big part of the change in working practices and remains a priority for all businesses. Automation and data analytics have proved to be powerful drivers of business growth. As these technologies become more integrated into operations, their benefits are becoming increasingly evident and measurable.

The arrival of artificial intelligence (AI), particularly tools like ChatGPT and Co-pilot, has shifted the focus of digital innovation. While Generative AI's potential is widely acknowledged, its practical application in enhancing productivity and driving day-to-day change is still being explored and it will likely be some time before any tangible benefits are seen. Regardless, the investment in AI capabilities is essential due to its potential for business. 

Digital transformation remains critical to the future of successful professional services firms and it clear there will be radical changes in how we do things over the next few years.  Firms need to be alert and agile to take advantage as new business models emerge and ensure we remain relevant.  Will you be a disruptor or disrupted?

4. Enhancing operational and process efficiency

In an era of heightened regulation and increased complexity in running a business, robust internal operations and processes are more crucial than ever. They not only safeguard the business but also ensure the delivery of high-quality services to clients. Although it must be recognised that there is often a balance to be struck between these priorities.  

By implementing effective back-office functions that align with a firm’s values, it ensures that staff are supported at all levels in providing services to clients. The benefits of which are significant and aid in client retention, reduce long-term costs, and improve financial management. 

5. Managing cash flow and mitigating bad debt risk

Cash management and the risk of bad debt remains one of the top concerns for CFOs, particularly in the current economic climate. Firms should consistently monitor their financial standing, with some businesses requiring daily reviews depending on their cash flows and operations.  

Finance teams play a key role in managing cash collections but this must be done in close collaboration with client facing colleagues.  There is an art to working out when it is best to leave the client teams to run with credit control and when to make a noise to focus minds.  Pushing continually may become counterproductive.

Understanding shifts in payment timings can help distinguish between widespread problems and isolated client issues, allowing for better management of potential bad debts. Clear communication regarding invoicing and client payments is also vital to prevent unexpected issues.

By keeping these five areas in mind, CFOs in the professional service sector can better navigate the complexities of 2024 with confidence and strategic foresight mitigating the uncertainty, disruption and slow growth of the current financial climate.