5 trends to watch for Professional Services CFOs

June 2023

What are the top market issues at the forefront of a CFOs mind in 2023?

Only three years into the 2020s but the decade is already looking like it will be remembered for unprecedented levels of uncertainty and disruption. Covid, supply chain disruption, international conflict, inflation and recession have all dominated the headlines and have all had a profound effect on business. Managing the finances of a business, budgeting and forecasting have probably never been a bigger challenge and as a result the role of the CFO has never been more complex.

With these challenges in mind, we asked BDO CFO Stuart Collins to comment on the KPIs that he monitors most closely to gauge and manage the financial health of the business - in short, what keeps him up at night?

Stuart has identified 5 areas of focus and has provided his insight into each, which we hope will be illuminating and informative for CFOs across the professional services sector.

This article will be the first in a series of regular check-ins with Stuart where he will comment on his top 5 and also any new market tends he is seeing and considers significant. We hope you will find it useful to hear from a CFO who is at the cutting edge of the professional services sector and understand what he considers crucial to protect the financial health of his business.

Rapidly increasing input costs and impact on pricing strategy

We have seen a significant rise in salary costs for our fee earners as the market has responded to inflation. Whilst a compelling people proposition is not just about salary the war for talent has seen increased movement between firms and qualified staff are at a premium. We have responded accordingly and have made significant increases in our salaries across the board. The firm has debated long and hard the extent to which increased input costs are passed on to clients through increased charge out rates. There is a balance to strike between maintaining profitability and rewarding our people appropriately. We continue to monitor this area as closely as possible especially the appetite for the market to accept the significant increase in the cost of direct labour.

Cash management and increasing bad debt risks

The bank of England and the OBR’s forecast for recession has fluctuated in recent times. Generally, commentators are painting a rosier picture of the state of the nation’s finances than was the case say three months ago. Naturally, this makes it difficult to predict the likelihood of bankruptcy and insolvency across our client base and understand our bad debt risk accordingly. We have certainly seen a worsening of client payment terms and an increase in debtor days throughout the firm, however, this is not yet at the levels which we might expect were the country entering into a prolonged period of economic downturn. We continue to monitor this with the greatest scrutiny and to liaise with finance providers to understand our exposure and to ensure we can take timely action where necessary.

Continuing tight labour market

Aside from salary increases and the cost of labour the market for talent remains constricted. The pandemic has had an effect here with people seeking different challenges and a different work-life balance post the confines of lockdown. We are committed to finding the right people to help our clients succeed and we have responded to these challenges accordingly looking further afield in different geographies and from non-traditional educational and career backgrounds in order to find the best people.

Productivity issues and new ways of working post-pandemic

The great return to work has not been short of challenges. Employees proved tremendously resilient throughout lockdown, working to incredibly high standards during a period of immense stress, delivering for clients and audited entities to an unprecedented degree. In short, people have shown that they can work remotely and still deliver.

Remote working has no doubt provided some benefits; reduced commute, proximity to family and an ability to manage more effectively domestic life through the working day. We all know, however, that the culture of the firm can be damaged as a result. What ties a person to a business is not interaction with their computer screen but interaction with humans in real life settings. What provides junior members of staff with the tools and education they need to achieve their potential is not just remote learning it’s experiencing how meetings are conducted and how senior team members interact with clients.

Balancing those two competing elements is difficult and one of the greatest challenges is how to decide the right level of office attendance to ensure the impromptu education of junior team members can continue and the organic development of culture can thrive.

Digital transformation – process automation/data & analytics

As a business we are committed to being at the forefront of digital transformation whether that be in the audit process for our audited entities, compliance automation for our tax clients or improved date and analytics usage for our advisory clients. We are producing compelling propositions for our clients and have had some tremendous success.

Any new digital project, however, requires a careful cost benefit analysis and an understanding of the market applicability and demand for what is being produced. To assess those issues we have a BDO labs team who work as an incubator for the vast array of IT solutions our partners and staff identify as being of interest for our clients. The BSO labs team challenge the market demand for a product and then lead in its development from prototype to full roll out to our clients. Developing these capabilities in-house allows our people to be at the forefront of the development to ensure that technological solutions are just what clients need.