4 challenges for consulting firms to overcome when scaling

Consulting firms are benefitting from the current disruption and uncertainty of the business landscape, according to the Management Consultancies Association (MCA).

Yet some are better placed to take advantage of this growing demand than others.

In this article, you’ll learn why some firms will scale and grow over the short, medium and long term and why some won’t, along with challenges faced by CFOs and business owners at consulting firms and how to overcome them.

Here’s what we cover:

• Growth rates for consulting firms
• Why have some consultancies seen a decrease in growth?
• Revenue leakage makes it difficult for consultancy firms to scale
• Why consulting firms experience difficulty when scaling
• How consultancy firms can gain real-time visibility into key metrics
• Consulting firms and cloud finance software

Growth rates for consulting firms

The latest figures from the MCA reveal a growth rate of 25% in 2022 for the consulting industry in the UK, which, the industry body says, “is now one of the biggest centres for consulting excellence in the world.”

This impressive growth rate surpasses the 18% of 2021 and just 4.5% in 2020.

However, the MCA research also shows that consulting activity is expected to slow, growing by 13% in 2023 and just 12% in 2024.

The pressure is therefore on consultancy firm leaders to do more to grow their businesses and stay ahead of the competition.

What has worked over the last few years is no longer sufficient as technology continues to transform business processes.

A survey by National Technology News and Sage reveals four key challenges for consultancies firms looking to scale up and to be ready to meet the challenges and client demands of the next few years.

Why have some consultancies seen a decrease in growth?

The first challenge to scaling up is a lack of growth.

According to the report, while 36% of those consultancy firms surveyed had seen an increase in growth, 27% had experienced a decrease, while 37% had experienced no change.

So, why have nearly two thirds of firms seen a decrease in growth or no change, despite the health of the consultancy sector as a whole?

There are probably a number of reasons.

A lack of effective marketing could well be a problem, allowing competitors to recruit clients.

But another reason could be that these consulting firms are not managing their finances in relation to the clients they already have.

You might be busy servicing your clients but are you sure that you’re billing them correctly for the number of hours that you’re devoting to them?

Automating back office processes can save money and reduce the risk of human error.

The staff costs you can save by automating tasks such as managing billable hours, bookkeeping, payroll, expenses claims, holiday requests and sick pay can instead be devoted to hiring new talent to service clients, thereby driving growth and enabling you to scale your business.

Revenue leakage makes it difficult for consultancy firms to scale

Revenue leakage is the second significant barrier to expansion for consultancy firms.

According to the National Technology News and Sage survey, approximately two thirds of respondents reported that billing and invoice issues were the principal cause of revenue leakage within their organisations.

Even as the aftermath of the pandemic subsides, market uncertainty, squeezed margins and new working practices are presenting fresh challenges, especially in terms of forecasting demand for expertise and in turn generating new revenue.

Invoices might be incorrectly issued, and they could also go unpaid for too long, adding to cash flow problems.

Cloud finance software can improve your invoicing efficiency and ensure that financial record keeping is consistent and accurate, as well as providing clear pricing and bolstering client advisory with smart reports.

It can help you ensure that clients are billed for the correct number of hours that consultants of varying degrees of seniority from juniors to partners and associates are devoting to them.

Another aspect of revenue leakage is resource availability.

A lack of investment in analytics can reduce data visibility and accurate reporting.

Here too, financial solutions, especially those that use technology such as artificial intelligence (AI) and machine learning, can help. As the pace of business accelerates, time tracking was cited by a third (34%) of those responding to the survey.

This could result in an inability to meet deadlines for clients’ projects, resulting in lost business.

Technology can help you to manage these projects, coordinating your staff whether they’re working from the office or home and enabling their managers to get real time insights into how a piece of work is progressing.

Why consulting firms experience difficulty when scaling

A remarkable 83% of respondents to the National Technology News and Sage survey said outdated systems and a lack of technology made it difficult for consulting firm owners to scale their businesses.

To overcome this third challenge to scaling your business, you can use technology to get accurate, real-time insights into the parts of your business that are not only experiencing the greatest demand from clients but also provide the best margins.

With this information to hand you’ll know where to invest and which services to develop and promote.

New technologies such as AI and machine learning can also get a better sense of the market generally.

Disruption and changes in business practices brought about by the pandemic and lockdown and, more recently, geopolitical uncertainty as well as stubborn inflation are having a profound impact on clients’ needs.

Technology can provide essential intelligence that will allow you to offer the services they want – even before they know they want them, and certainly ahead of the competition.

According to almost half of the survey respondents, different priorities across the business and a lack of consistent focus is another limiting factor when it comes to scaling up the business.

Ensuring that you and your senior team not only have access to accurate, comprehensive and timely data but are able to share it with stakeholders and turn it into actionable insights will improve your teams’ alignment and ensure you’re all pulling in the same direction.

How consultancy firms can gain real-time visibility into key metrics

The fourth challenge to scaling up a consultancy firm is a lack of real-time visibility into key metrics.

Almost all survey respondents (99%) said real-time visibility into key metrics was hindering their ability to scale up.

Meanwhile, number-crunching conducted by junior consultants, no matter their capability, may not be sufficient in meeting the market’s ever-changing demands.

“If you can’t measure it, you can’t manage it,” it’s often said, and these days you need to predict it as well.

Senior management and other departments of the organisation need to play a more active role – and to do this they need easy access to accurate, relevant data in real time.

AI technologies such as Natural Language Processing (NLP) can perform manual data analysis tasks to help you and your senior leadership team interpret large datasets and turn them into actionable information.

You can identify the areas of your business that are growing fastest so you can decide where to invest.

Similarly, you can see where your firm is less profitable or is losing market share.

In an increasingly fast-moving business environment where new opportunities – and new threats – emerge more rapidly than ever, having access to information in real time and being able to make accurate predictions is particularly important.

Two findings from the survey demonstrate the challenges presented by regional variations.

Just over half of respondents (53%) cited a lack of multiple accounting standards within their general ledger, while approximately the same number (57%) referred to scaling consistencies across different global regions.

These issues could be managed by firms adopting Distributed Ledger Technology or blockchain.

The distributed or non-centralised nature of blockchains means you can scale your general ledger across different regions and introduce multiple accounting standards, bespoke to these regional variations, in the general ledger.

The decision to invest in new technology when margins are being squeezed and markets remain uncertain is a tough one to make.

Similarly, how can you have the confidence that new software packages will be easy to update and ready to scale up as your business grows?

Consulting firms and cloud software

This is why a growing number of consulting firms are choosing cloud finance software.

Opting for the cloud rather than hosting the IT entirely in your office – known as ‘on premise’ – is often less expensive because you’re not having to buy your own software and hardware and make a long-term commitment to it.

This means cloud finance systems are also more flexible.

You might have a great product and a great team delivering it but unless your back office systems, revenue management and data analytics are equally first rate, you’ll struggle to scale your business.

The good news is that new technologies such as cloud finance software are increasingly cost effective, flexible and easy to install and run.

Taking some time out with your senior management team to identify what exactly you need to build the foundations for your expansion and to adopt new technologies will help you to scale up your firm and take it to the next level.