The continued trend towards outsourcing is expected to ensure future growth opportunities for Facilities Management companies; those with bundled services and integrated solutions, in particular, showing the strongest growth potential. However, increased price competition can be expected to restrict a stronger value development with clients adopting a “more for less” attitude.
In the public sector, spending cuts will afford further opportunities through the new Crown Commercial Service (CCS) next generation FM framework although price competition is expected to remain intense. We believe however, that there is a changing culture among several public-sector bodies towards contracting out services.
CCS and related central government bodies will continue to benchmark essential services and will aim to increase the rate of commoditisation and standardisation of essential public services. Providers will be increasingly bidding for private sector opportunities. Competition will further intensify, especially in the £500k – £5m a year revenue projects.
In this series of articles we will address three key questions
Does your Facilities Management (FM) business have growth clarity?
How do you stand out in the FM market in 2018-19 and beyond?
Is your FM Company built to succeed?
We will address these issues using Baachu’s 3Ps model
Does your FM business have growth clarity?
To answer this question let’s use the first of Baachu’s 3Ps – Perception
Review your purpose closely and ask common sense questions
- Why are you in the FM business?
- What are your competitive advantages and USPs?
- Are you building sustainable capabilities?
- Are you aware of market trends, especially the decreasing profitability in the FM business?
It is very important to have good data and accurate perceptions about the market. The FM market increased by £10.7bn to £117bn in 2017, from a fairly static 2012 value of £106.3bn but is expected to be £129 billion by the year 2019. You must continuously track the trends and the issues related to FM industry. This will lead you to a good understanding on how to differentiate yourself in a crowded market.
Like any industry, growth in the FM business takes two formats – top line and bottom line growth.
A company’s bottom line is its net income, or the “bottom” figure on a company’s income statement. It is a company’s income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company’s bottom line can also be referred to as net earnings or net profits.
The top line refers to a company’s gross sales or revenues. Therefore, when people comment on a company’s “top line growth”, they are making reference to an increase in gross sales or revenues. Both these figures are useful in determining the financial strength of a company, but they are not interchangeable.
Bottom line describes how efficient a company is with its spending and operating costs and how effectively it has been controlling total costs. Top line, on the other hand, only indicates how effective a company is at generating sales and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line.
As the saying goes turnover is vanity, profit is sanity but cash is reality! Just chasing revenue and not focusing on profitability or cash leads disaster.
Many business leaders focus on a year on year top line growth of some 10%. The average margin is less than 5% while some companies struggle to make 1% or 2 % margin. There are some providers who target a top line growth and go for 0% margin.
Many businesses in the FM sector focus on top line growth, resulting in 7 CEO changes among Top 10 support services companies in the year 2017. As we have seen with Carillion and few larger outsourcing companies, all it takes is few failing contracts and the entire business collapses.
However, this is not to say that a company cannot experience both top-line and bottom-line growth at the same time. It takes strong leadership and a value driven culture to achieve top line growth and bottom line efficiencies at the same time.
Baachu recommends balanced growth (sustainable top line and bottom line growth)!
As FM opportunities continue to grow rapidly and competition intensifies, you need to build strong knowledge partnerships that can help you build upon your strengths to capture market share. Baachu’s expertise in FM will give you the insight and advice needed to achieve growth clarity for your vision going forward.
You can benefit from talking to the FM experts, so get in touch with us by emailing email@example.com today.
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