THE IMPORTANCE OF MANAGEMENT ACCOUNTS TO A RECRUITMENT AGENCY
As a recruitment agency director, it is important to know if the business you are running is profitable and on the right track to achieve its goals and targets set. The only way to monitor this is to ensure that you receive correct management accounts on a regular basis.
TBOS has found from speaking to many recruitment agencies that they either:
Don’t receive management accounts on a regular basis
Their management accounts are late or incorrect
They do not understand the reports as their accountant has not made it clear to them which information they should be taking note of
All of these reasons have meant the director cannot make important decisions about taking on additional staff, changing computer systems or moving offices, as they are unbeknown if the business can afford it or sustain the extra monthly cost.
TBOS understands that recruitment agency owners are normally recruiters with excellent sales skills with no real interest in figures, but even the most basic understanding of management accounts can make a huge difference to the success of an agency.
For this reason TBOS lists the main reasons why it's important to receive and understand your management accounts.
ANALYSE YOUR RECRUITMENT SALES
Every recruitment agency can only survive if there are placements being made each month that’s why it is important to monitor the growth in turnover, cost of sales and gross profit. Understanding where the peaks and troughs are and justifying the increase or decrease in sales can help you to plan how the business will grow over the next few months.
MONITOR YOUR OVERHEADS AND EXPENSES
Ensuring that you understand where your money is being spent and the costs associated with each particular area of your business will make it easier for you to control your overheads. By monitoring your costs against your sales, you stay informed on your business figures, this is vital for a growing agency that will take on additional overheads in the future.
KNOW YOUR HMRC LIABLILITIES
Your management accounts will show your current liabilities due to HMRC so you can plan these into your cash flow. This helps to avoid falling behind and receiving penalties and fines. Having a good understanding of when these are due and how these are calculated can ensure you make the most of any tax allowances if you qualify for them.
PLAN HOW YOU WILL BE PAID
As an agency director there are a few methods of taking funds in the most tax efficient way from the business these include:
It’s worth noting that dividends can only be declared if there are profits available or these will be allocated as directors’ loans which can result in additional taxes if not repaid. Having regular management accounts can ensure that the payments being made are done correctly and within the profitability of the business.
KNOW YOUR AGENCY VALUE AND POTENTIAL EXIT STRATEGY
Your management accounts are a perfect way for you to monitor your agency’s value and to know what would happen if your agency were to stop trading. Your balance sheet shows the money you would have available once all your debtors pay and once you pay all of your liabilities.
Your profit and loss sheet will detail your current annual profitability which can be used to calculate the value of your contract and/or permanent book. Combined together these can give a clear indication of your business value and help you to plan your future exit strategy.
HOW TBOS CAN HELP
TBOS has always instilled the importance of management accounts to all of our agency clients and as part of our TBOS Complete plan every agency receives monthly management accounts. To accompany this service TBOS also gives a crash course on how to read the figures provided and the key indicators they should be monitoring each month. TBOS can also provide additional reporting to the agency to monitor staff performance, team targets and review invoice finance costings to aid the agency on making important business decisions.
TBOS also conducts regular meetings with the agency owners to help them plan the next stage of their business growth and will make recommendations on ways to improve the company value for future sale.
If you would like more information on how TBOS could help your recruitment business and its management accounts needs, please do not hesitate to contact our office on 0345 646 0402.