It seems that just about everything today relies upon computers, and as a result, computer programming services is a booming industry. For bankers, despite the risks, there is a lot of opportunity to be found within the rapidly growing computer programming services industry.
The 62,700 computer programming services firms in the U.S. develop custom computer programs designed for clients’ specific needs. Services include developing application software, software analysis and design, software support, and webpage design.
An industry worth computing?
If you think this is a niche you and your bank may want to pursue, you should first consider the risks associated with lending to computer software firms. First, it’s good to know that computer firms’ rate of mergers and failures is higher than the national average at 18.1 percent — so you must pursue the ones with excellent management and longevity.
Secondly, these firms are very dependent upon skilled labor – who come and go at a moment’s notice. Therefore, having leadership and attractive cultures is a key to success. There are other risks – competition from overseas, cyclicality, and very rapid changes in technology. Nonetheless, despite these risks, the good ones perform very well and often carry large checking account balances, own their own buildings, and carry large accounts receivable that often need lines of credit to support them.
If you’re calling on computer programming firms, there are three important trends to be aware of within the industry, which you, as a banker, have the ability to address and understand from owners.
More mobile
Growth for global mobile data traffic continues to grow at unprecedented rates, according to the Cisco Visual Networking Index. Average mobile network connection speeds more than doubled in 2012 and are expected to triple from 6.8 Mbps in 2016 to 20.4 Mbps in 2021. Higher speeds are fueling significant increases in mobile video traffic, smartphone usage, and laptop and tablet connectivity.
Mobile to mobile connections for applications such as security and surveillance, healthcare, inventory and fleet management, and telematics are also becoming more prevalent. With global mobile data traffic projected to double between 2016 and 2021, computer programming services firms that can develop mobile applications or integrate mobile platforms can achieve a significant competitive advantage.
How bankers can help: Investing in staff training and tools to keep pace with rapidly changing technology
Banking solutions: Term loans
Moving to the cloud
Large companies are shifting more workloads to the cloud, according to a study by financial services firm Goldman Sachs. In fact, over 70 percent of firms contacted said they were using Infrastructure as a Service and Platform as a Service offerings from cloud vendors.
Perhaps unsurprisingly, Amazon.com Inc.’s Amazon Web Services (AWS) is leading the pack in providing cloud computing to businesses; their net sales rose 43 percent year-over-year to $3.7 billion for the quarter ending March 31, 2018. Microsoft and Google also posted strong cloud computing results thus far this year, reflecting continuing movement from enterprise computing to cloud computing.
As a result of this trend, many computer programming services have shifted their focus to developing new cloud-based software and to migrating legacy enterprise-based systems to the cloud as a result.
How bankers can help: Efficiently managing collection of payments for programming contracts (21-23 percent of assets)
Banking solutions: ACH services with blocks and filters; lockbox
Competing offshore
U.S.-based firms attempting to reduce costs often look to foreign providers of computer programming services. Companies in India, China, Mexico, and the Philippines have developed strong programming workforces, which earn significantly lower wages than U.S. counterparts. With its large, growing population of English-speaking programmers, India is the dominant player in the off-shore outsourcing market.
Competition for the best workers can be intense and job switching is common. U.S. computer programming firms must improve efficiencies and also attract and retain top IT talent in order to compete with these offshore firms. Some large companies are importing foreign workers to fill positions through the H1-B visa program. Over-reliance on foreign workers can be risky, however. The U.S. caps the number of workers allowed through the H1-B program, and higher domestic unemployment rates have brought increased scrutiny to the practice of employing workers from outside the U.S.
How bankers can help: Attracting and retaining high quality technical staff (27-29 percent of sales)
Banking solutions: Payroll service; workplace banking solutions; line of credit
Get with the program(mers)!
As you can see, the computer programming services industry is hot, and it should continue to be a growing industry well into the future.
If you think this is a niche you’re interested in banking, the four trends covered within this blog post would make for great client talking points, helping you dive into a discussion about how you, as a banker, can address these challenges and opportunities that many firms are facing.
All of the information within this post was pulled directly from the Vertical IQ Industry Profile on Computer Programming Services. Check out the profile prior to your sales call to learn even more about how companies within this industry operate, the bank products they are using (including details on working capital and capital financing), and additional risks and opportunities faced by IT firms.
Pressed for time? Do a 5-minute review of the Computer Programming Services Call Prep Sheet and you’ll learn some fast facts, working capital management details, three industry-specific questions to ask your prospect, and the top three financial challenges that are most common among other firms within the computer programming services industry.
Ready to get started? Contact us today for more information or a demo of Vertical IQ!