Performance has picked up during Q3 for the business services sector but it still remains the poorest performing industry, according to the Bibby Financial Services’ Business Factors Index.
The Index, which tracks the quarterly performance of business turnover among Bibby Financial Services’ 3,000-strong UK client base, reveals the business services sector reached a reading of 92.5 in September 2010, compared to only 86.7 in September 2009. This provides evidence of a small recovery, though the sector is still a long way from its pre-recession highs of 112.4 in October 2007.
This annual growth is reflected in the outlook of business owners in the sector, with 37 per cent claiming their business is performing better than at the same point a year ago, the highest of any sector. The same number of businesses state they are implementing a growth strategy, again the highest of any industry, indicating that the business services sector is being the most proactive in developing new revenue streams.
However, despite this slight growth, almost a quarter (23 per cent) of firms in the sector believe we could feel the effects of the recession for at least three years and to combat testing times, almost two thirds (62 per cent) have already had to cut costs.
A recent British Chamber of Commerce survey shows every indicator (new orders, employment, cash flow and investment) for the service sector weakened in Q3, with businesses in the sector having been adversely affected by a loss of public sector contracts. However, the Services Purchasing Index published by Markit in October demonstrated a marginal growth in output during September, complementing the Index’s findings.
Looking forward, the business services sector will have to contend with the repercussions of the Comprehensive Spending Review. Although a quarter of business owners (25 per cent) feel the cuts in government expenditure will have no impact on their business, their optimism is not shared by leading consultancy firm PwC which recently predicted that nearly half a million private sector jobs could be lost due to the knock-on effect on suppliers to the public sector.
Julia Linton, director of Linton Recruitment, comments on the findings of the Index: “Linton Recruitment has experienced an increase in output over the last few months and we are hopeful for the future. I had the best August and September of my career as clients seemed more willing to spend money on recruitment rather than put up with staff shortages. We are doing much better than a year ago. For example, in the hospitality industry which I focus on, Christmas is the biggest time of year. Last year, Christmas virtually didn’t happen whereas this year, I am already looking extremely busy.
“Most of my peers in the recruitment industry didn’t think the recession would last this long. Unfortunately, I don’t believe we’ve felt the worst yet and I think things will remain tight well into the middle of 2011 and that we won’t actually experience a real recovery for a full five years. I think there will be lots of peaks and troughs as financial directors tighten their belts and only release money to spend on recruitment when absolutely necessary.”
Edward Winterton, recruitment finance specialist at Bibby Financial Services, says: “The business services sector has yet to reach its pre-recession highs and though there has been a lift in turnover over the last quarter, there is still much uncertainty on the horizon.
“The domino effect of the Comprehensive Spending Review could result in a significant decline in gross output within the private sector and a rise in unemployment, stirring fears of a double-dip recession among many in the industry.
“Despite this, it is heartening to see more than a third of companies implementing a growth strategy and I believe this is a good response to the current economic climate. Also, government initiatives such as the holiday on National Insurance Contributions should help stimulate growth for many start-ups and firms would be advised to see how they can plough any money saved back into their fledgling businesses.
“It’s certainly not all doom and gloom for business services. Within recruitment, a key player in the sector, further opportunities for growth will emerge because of the austerity measures. For example, there is likely to be a surge in the number of public sector candidates with specialist skills looking for positions due to the significant number of public sector job losses. Savvy recruiters will do well to diversify and expand into new markets in order to marry these skills with suitable roles.
“We cannot know how the business services industry will fare in 2011 and so it is vital that firms do all they can prepare for fluctuating levels of turnover. Building strong financial foundations is vital as cash is the lifeblood of any business. Even in this climate, there are sources of flexible finance such as invoice finance which are open to businesses of all shapes and sizes, so no business need fear running out of finance to fund growth when new opportunities arise.”
The Bibby Financial Services’ Business Factors Index tracks movements in small business turnover and combines this data with the results of a series of interviews conducted with 300 business owners, from a range of businesses across the UK, to produce a comprehensive overview of how UK firms are faring in the current climate.