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Once considered a lagging sector in N.C., professional services companies throughout the state are experiencing significant growth. PNC is working alongside them, providing solutions and services to help address business challenges.
For John Messick, PNC commercial banking lead for the Eastern Carolinas, indicators of a thriving professional services ecosystem abound. The view from his 21st floor office in downtown Raleigh is punctuated by construction cranes. The highway he travels upon for the occasional beach getaway is newly paved. And many of the professional services clients he and his team advise – including engineering, architecture, accounting, law and consulting firms that are integral to facilitating North Carolina’s growth – are in growth mode themselves.
The continued growth of companies in the professional services space is not without headwinds – especially against the backdrop of business disruptions stemming from COVID-19, says Messick. From managing cashflow and payments to planning for the future, Messick and his team of commercial banking relationship managers and in-market colleagues are helping professional services organizations advance and evolve their businesses.
SOLVING THE CASHFLOW CONUNDRUM
Cashflow can be a perennial challenge for professional services providers. Demand fluctuates. Customers change. And services specific to some professions such as accounting are seasonally driven. While companies may plan for these variables, other external challenges – a global pandemic, for instance – have the potential to severely hinder cashflow, the lifeblood of a business.
“In many recent cases, we’ve found that companies have contracts for work, and the demand for services is alive and well,” says Messick. “However, disruptions in the supply chain are making it difficult for some firms to perform work immediately. During times when projects – and therefore, revenue – are on hold, organizations can rely on working capital lines of credit to keep their operations going.”
A revolving line of credit for short-term or unpredictable needs, for example, can help companies react quickly when challenges or opportunities arise. Additionally, using a revolving line of credit for short-term purchases can help companies improve their standing with vendors and may improve their eligibility for early-payment discounts.
For professional services that require large capital expenditures, equipment financing is another credit strategy that can help preserve cashflow, says Messick. There are various creative ways to structure these loans to better leverage working capital, while helping control infrastructure costs and managing equipment obsolescence.
Also essential for optimizing cashflow, says Messick, are treasury management solutions, which can help organizations grow revenues and control costs.
OPTIMIZING CASHFLOW & BUSINESS CONTINUITY
Accelerating receivables processes is one step professional services companies can take to help improve cashflow, says Dan Behanna, PNC Treasury Management sales manager for the Carolinas. Lockbox solutions, for example, allow companies to channel all payments – both electronic and paper – through a financial institution’s local processing center, where specialists process payments and route funds into one central account for quick posting. PNC maintains nine such centers throughout the country, including one in Charlotte.
In addition to accelerating receivables, lockbox services can help companies be more resilient, says Behanna. This was particularly evident in 2020 when many organizations transitioned employees to virtual work environments, putting a strain on accounting departments and the ability to manually collect and deposit checks.
PLANNING FOR THE NEXT CHAPTER
In an industry as knowledge-, skill- and relationship-based as professional services, it should come as no surprise that succession planning is an important element of a holistic business plan.
“It is never too early to begin planning for business succession,” says Charlotte-based Jim Benedict, PNC senior wealth strategist and private business strategist. “With professional practices, there often is a split in value among practice revenue, ownership of real estate and equipment, and leading the practice. That’s why a vital aspect of succession planning is understanding the relative value of the company and how the various components of the business will be transferred at the time of exit.”
Another crucial element of succession planning is identifying likely successors well before an owner plans to exit, says Benedict. That way, future leaders can be brought into the practice and develop relationships with existing clients. And, in the event of an unplanned exit, the company is equipped for a change in leadership.
Yet another consideration that is more deeply felt by owners of professional services companies is the value needed for a smooth exit, says Raleigh-based Michael Moyer, PNC senior wealth strategist and private business strategist. “The value of a professional service firm is greatly enhanced if successors to a retiring partner are well-integrated into the practice, and have been delivering valuable services to firm clients in the years before an exit,” says Moyer. “From a retiring partner’s perspective, it’s important to get started early, and build value outside of the business so they are well positioned for retirement and the future.”