Small consultancies struggle to hire as late payments bite

Small consulting firms are struggling to undertake recruitment drives required to meet the needs of their clients, as the impacts of the UK’s economic uncertainty comes home to roost. More than a quarter of small firms have seen their income take a hit from late payments in the last year.

Earlier in 2023, research from Sonovate found that small and mid-tier (SME) consultancies remained upbeat, in spite of the economic turbulence of the UK market.

While a 51% majority of all consulting firms saw average revenues grow over the last three years, the study found that this rose to 69% of small firms with 10 to 49 people, and 82% of medium-sized consultancies with 50 to 249 people.

However, a recent follow-up from Sonovate suggests that all is not well in the market segment.

Due to noted headwinds in the sector – some of which are likely to be more keenly felt in the finely-balanced books of SME consulting firms – the vast majority of the UK’s SME consultancies need to hire more consultants to expand their business; but most find themselves unable to do so. This will make it harder to capitalise on market demand in the future, jeopardising their long-term growth.

According to Sonovate, 85% of small consultancies with between 10 and 49 people, and 82% of medium-sized consultancies with 50 to 249 people have enough talent in their teams to service their current clients – but believe they would need to hire more consultants to expand their business. Illustrating the dilemma these companies face, 55% of medium-sized consultancies added that they had already lost out on contracts specifically because they do not have the capacity to take on more work.

This means that recruiting more specialist consultants in the next 12 months has become a top a priority for 73% of medium-sized firms, while 65% of large consultancies also plan to hire more specialists to give them more ‘hands on deck’ to win new business while servicing their existing client bases.

But small consultancies are unable to keep pace with these requirements, as they are acutely exposed to a number of market pressures. As a result, just 15% of small consultancies are intending to increase their headcount in the same time period.

Commenting on the research, Damon Chapple, co-founder and co-CEO of Sonovate, said, “Being specialist remains key to most consultancies’ long-term competitive advantage, but maintaining a high level of specialist talent comes at a cost that many consultancies – particularly the smaller sized ones – can’t afford in the current market environment.”

Exploring the odds stacked against smaller firms, Sonovate pin-pointed one in particular: late payments. The issue of late payments by clients to consultancies that supply services to them has been biting hard in the last year – with 62% of SME businesses revealing that payment delays create a knock-on issue to their cash-flow.

While 26% of all consultancies have seen such instances rise in the last year, this has the most detrimental effect to smaller consultancies. Relying themselves on smaller clients who may be having cash-flow issues, 27% of mid-sized firms, and 38% of small firms saw late payments rise – understandably making it harder for them to put money toward recruitment needs.  

Chapple added, “It isn’t fair that smaller consultancies are forced to keep up a near-constant juggling act to off-set the impact of clients who don’t pay them on time. When cash-flow issues put significant pressure on small consultancies, to achieve the sorts of growth ambitions they set for themselves, sourcing alternative forms of finance that work harder and more intuitively for these sorts of businesses becomes critical.”