At Veritex Community Bank, we like to stay in alignment with what’s happening in the markets and industries we serve. Here is some information you may find insightful.
Professional Services
The professional services industry has been greatly benefiting from an increased consumer spending and business investments over the recent period. Although some professionals like architects, engineers and specialized designers experienced challenges due to lower construction spending in 22-23, revenue has increased at a CAGR of 2.9% over the past five years, and profit is projected to follow the same trend.
In this ever-changing environment, it’s hard to keep up with technological advancements, globalization and environmental needs that shape the industry:
Lawyers, advertisers, architects and engineers are expected to increase use of automation/AI to improve efficiency and profitability.
Engineers, architects and scientific and economic consultants are expected to greatly benefit from the sustainability initiatives resulting from Bipartisan Infrastructure Bill and the Inflation Reduction Act.
There is much more to it. Below, please find additional insights on industry sub-sectors that you might find useful.
Healthcare
Healthcare practitioners in the US are navigating a complex environment driven by economic factors, technological advancements, and aftermath of COVID-19. While growing demand for primary care services is undeniable, reduced access to care is creating concerns. Reduced access to care due to physician burnout, younger adults opting for alternative healthcare options like telemedicine, and doctors opting to work in bigger healthcare organizations are all contributing to leaving some markets underserved. Regardless of these challenges, it’s reported that industry revenue is expected to reach $302.2 billion in 2024, growing at a CAGR of 0.3%, with projected growth to $344.2 billion by 2029. Although the outlook is promising, an important factor impacting the industry revenue will be regulations, Medicaid, Medicare, and private insurance payments as these are the main funding sources for services:
- Young Patients: Medicaid stands as the big portion of payment
- 45-64 age Group: Out-of-Pocket payments/private insurance are the main funding sources
- 65-85 age Group: Medicare is the main payment form
Another emerging trend to consider is younger adults opting for alternative healthcare options like telemedicine, instead of visiting care clinics. Adoption of telemedicine is seen as both a way to attract younger patients, and to reduce operational expenses.
Lawyers
Profitability metrics for Law firms have been trending upwards thanks to increased demand (specifically in high-growth industries) for litigation and intellectual property services, as well as increased law service growth rate. High interest rates inhibiting M&A activity and decreasing law service demand is still a theme, but projections imply that the worst might be over.
A recent RSM article reports that according to the Thomson Reuters Law Firm Financial Index, the increased demand for law services were spearheaded by midsize companies with a 3.7% increase in demand, compared to a 0.3% increase for AM Law 100 firms. RSM reports that another big factor contributing to steady growth has been law firms increasing rates at an average of 4.5% year-over-year. This tactic coupled with rising interest rates pushing inflation below law service rate growth has created a growth environment for law offices.
Although profitability is on the rise, there are still issues around collections – The RSM article notes “The collections cycle lengthened by 5% year over year, continuing a two-year trend of law firm clients taking longer to pay bills, according to Citigroup. This trend was seen across industries, with clients feeling the cash flow squeeze of economically cautious customers and high interest rates. Although strategies can be implemented to reduce the time to collect operationally, law firms should expect delayed collections to plague their balance sheets until economic confidence and growth return.”
Another recent trend increasing competition has been substitutes for law firms becoming more prevalent as some states authorize certified non-attorneys to work on some legal-related matters.
CPA/Tax Preparation Services
Tax preparation services experienced a volatile economic environment. COVID-19 creating a big economic turmoil and reducing demand for in-person tax preparation services have resulted in a big revenue plunge in 2020. The increased use of free online filing options gaining popularity is another important factor contributing to decreased demand.
Despite the financial complexities, the industry recovered post pandemic and resulted in higher incomes and a fall in use of online services. A recent market report notes “According to The Business Research Company’s findings, the tax preparation services market size has experienced consistent growth, projected to rise from $31.12 billion in 2023 to an estimated $32.62 billion in 2024, reflecting a noteworthy Compound Annual Growth Rate (CAGR) of 4.8%. This upward trend during the historical period can be attributed to traditional tax filing practices, complex tax regulations, changes in tax laws, small business expansion, and heightened consumer awareness and education.”
Experts expect the industry to be shaped by some major trends we’re seeing glimpses of:
- Rise in regulatory complexities
- Impact of economic fluctuations on filing patterns
- Growth in online and remote services
- Expansion of services to include audit support and IRS negotiations
- Growing importance of multilingual and multicultural services
- Demand for year-round financial planning and advice
Wholesale
The Wholesale Trade sector has experienced growth despite recent volatility, caused by the pandemic. In 2020, the industry suffered from a 7.8% revenue construction due to the pandemic causing declined demand and falling commodity prices. Although the industry moved in line with the economy since the pandemic and the consecutive revenue increases in 2021(17.2%) and 2022(9.2%) are promising, the sector is forecasted to contract further as the Federal Reserve tries to control inflation.
An emerging trend over the recent years has been sustainability – requiring companies to be transparent about energy efficiency, product traceability, and ESG reporting. An article by Magnue Meier, Global Head of the Wholesale Distribution Industry Business Unit at SAP, notes “69% of B2B buyers work at companies that require purchasing from sellers with sustainable practices”. We see further proof of this trend when we look at sub-segments like electrical parts wholesalers, who are seeking to link up with energy-service companies to supply products for energy retrofits.
Per Meier – “When distributors accept this reality, it can clarify the profitability side of sustainability. In an industry under relentless margin pressure, investing in sustainability can seem risky. But for distributors that lean into goals such as energy efficiency, reducing packaging waste, and obtaining certifications, the payoff can be a competitive breakthrough.”
Thank you for taking the time to read our comprehensive update on the professional services industry. We hope you found the information on healthcare, legal services, tax preparation, and wholesale trade valuable. Stay tuned for more updates and expert analysis from Veritex Community Bank, helping you stay informed and ahead in the market. For any further inquiries or personalized advice, feel free to reach out to our team of bankers.
About Veritex Community Bank: Veritex Community Bank is a mid-sized community bank serving its customers with a full suite of banking products and services. The bank has more than 30 branch locations in Houston, Fort Worth and Dallas, Texas with total assets of more than $10 billion. The bank specializes in providing depository and credit services to retail and small- to mid-size businesses, which have been largely neglected by national banks. The name “Veritex” is derived from the Latin word “veritas,” meaning truth, and “Texas.”
Sources:
https://www.the-future-of-commerce.com/2024/02/19/2024-wholesale-distribution-trends/
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