Following a disappointing start to 2010, the business services sector, which includes the recruitment and security industries, has shown strong signs of stabilising over the past six months, according to the latest Bibby Financial Services Business Factors Index.
The improvement seen in the last quarter of 2009 was not sustained at the start of the New Year and the sector was operating at a lower, yet steady, level in January and February. However, March saw a period of considerable growth in the sector, with output reaching its highest since October 2008.
The Business Factors Index, compiled by specialist business finance provider Bibby Financial Services, tracks movements in small business turnover since July 2007. The trends derived from this data have been collated alongside the results of a series of interviews conducted with more than 300 business owners from a range of businesses across the UK.
The Index for the business services sector shows that:
- Almost a third (33 per cent) of business services firms state that trading conditions are steady, while over half (53 per cent) feel that trading conditions are about the same as they were six months ago
- This is the highest percentage of stability across all sectors and reinforces the suggestion that the market has remained the same within this time
However, despite stabilisation occurring in the sector, it continues to perform at the lowest level of all the industries surveyed in the Index. Indeed, many business services firms are still finding the financial climate extremely challenging and are uncertain of when signs of recovery might occur, as revealed in the Index:
- Over a third (39 per cent) - an increase of 16 per cent on the last survey - feel that conditions are really tough or that they are only just surviving, with some in the business service industry being forced to make cuts
- Two thirds (65 per cent) predict that conditions for business services companies will not improve for at least a year, which suggests that there is a long way for the sector to go before it bounces back
- Over two thirds (64 per cent) of owners and managers of business service firms expect their business to pick up at around the same time as others, suggesting that the industry will play a key part in the recovery of other sectors in the economy
Steve Emden of Cerco I.T (Staffing Solutions) Ltd says: “Our business is currently performing well and the outlook throughout the sector has definitely improved as many companies are now looking to reinstate programmes that had previously been put on the backburner. This will certainly help us on our way to recovery, but the road will still be long and complicated. Clear policies for the future that will ensure the base rate remains low, a reduction in the tax burden and greater incentives for companies to invest are all key factors in promoting economic recovery.”
Indeed, there are challenges and risks which are likely to impact growth in the industry. For example, the CBI Service Sector Survey February 2010 found that prices in the business services sector are continuing to fall, reducing profits and making conditions tougher in the marketplace. The report also shows that the difficulty in raising funds, domestic competition and the level of demand remain the greatest obstacles to growth.
This is strongly reflected in the Index, with the majority of firms (36 per cent) believing that the loosening of lending criteria and credit availability would be the quickest way for the industry to recover. This feeling is more so in the business services sector than any other industry and has actually increased by 12 per cent on the last Index, alluding to the fact that access to finance is becoming a greater barrier to the recovery and growth of the industry.
Edward Winterton, recruitment finance specialist at Bibby Financial Services commented: “Despite the fact that the business services sector remains the poorest performing from our Index data, it is encouraging to see that conditions have begun to stabilise within the industry, which, over the past two years, has continually fluctuated. It is also promising to see some improvement over the same period last year.
“However, for recovery to occur in the sector, this level of stability must be upheld. With this in mind, it is more important than ever for firms to ensure they are prepared for growth and can make investments in their business where needed. It is this further access to finance which is so desperately needed, particularly for the business services sector, in order for these businesses to move forward and Bibby Financial Services is committed to helping them achieve this in 2010.”
This, and subsequent quarterly updates to the Business Factor Index will be issued by Bibby Financial Services and is available online at www.bibbyfinancialservices.com
