IT consultancy businesses, which includes software developers and consultants, are becoming increasingly confident about their financial prospects in stark contrast to the deepening gloom in many other sectors of the economy, such as retail, housebuilding, and hospitality.
This is based on the latest research commissioned by Integro Accounting, a leading provider of accountancy services to contractors. Thousands of businesses were sampled across the economy on a range of subjects ranging from sales volumes, staffing shortages and inflationary pressures.
On the question “How much confidence do you have that your business will survive the next three months?”, 89% of IT consultancy businesses said that they are highly confident with just 1% reporting low confidence. This is a steady improvement over the last three years. 79% and 76% reported high confidence when asked the same question at the end of 2021 and 2020 respectively.
Over half (57%) of IT consultancy businesses feel business performance will increase during 2023 with just 2% believing that performance will decrease – a marked contrast with most other sectors of the economy. Only veterinarians come close to matching the optimism of IT business leaders but while 57% of owners of veterinary practices think performance will improve in 2023, a large minority (13%) think performance will deteriorate (see graph 2).
Talent shortages in the IT sector have also eased over the past year with over two thirds (67%) of IT business leaders reporting that they are not experiencing a shortage of workers, up from 62% at the end 0f 2021.
Christian Hickmott, Managing Director of Integro Accounting said, “Valuations and amounts raised by UK tech businesses reached record levels last year and the early signs are that 2023 could be even better. While many IT consultancy businesses struggled during the pandemic, they have generally shown greater resilience and emerged in a much stronger position than most other sectors of the economy.”
“Despite the economic upheavals of the last few years the UK’s tech sector is rebounding strongly at a time when many other sectors of the economy are contracting. Covid-19 policy accelerated market shifts that have outlasted the pandemic, which has been to the benefit of much of the UK’s tech sector but to the detriment of other sectors of the economy.”
“Businesses are continuing to invest in digital transformation projects to drive productivity gains as a way of lessening the impact of inflation. This should provide a boost in demand for tech skills.”
He adds: “Industrial action in the transport sector which is having such a damaging impact on retail, leisure, and hospitality businesses, has been a boon for the many tech businesses. There had been a drift back to pre-pandemic working practices but with transport disruption ongoing more organisations are entrenching remote working and the associated technology, and this looks set to continue for the foreseeable future.”
Profit margins being eroded by rising costs
According to Integro Accounting, despite the generally positive news for the IT sector, there is growing evidence that inflation is eating into the profit margins of IT businesses with the majority reporting that they are having to absorb costs, rather than pass them on to clients.
43% of IT businesses are reporting that they have absorbed the cost of price rises, while only 17% have successfully passed on price rises to customers.
Christian Hickmott says: “While inflationary pressures are clearly having an impact on the overheads of IT businesses, most other sectors of the economy are faring worse in terms of having to absorb those costs. Strong demand for software and IT services puts tech businesses in a relatively stronger position when negotiating price increases with customers.”