The Top 3 Financial Mistakes Recruitment Start-Ups Make
When you’re starting a recruitment agency, there are many things to get right. You’ll need to create an eye-catching brand, write a watertight business plan, strike lucrative deals with clients, and source talented workers to fill vacancies – in fact, there’s so much to consider that it’s unsurprising if some tasks are given more emphasis than others.
Getting your finances in order, however, is one area of business planning that you can’t afford to neglect. Without a sound short to mid-term financial plan, it will be impossible to justify your assumptions about your business’s performance, and you won’t be able to contingency plan for different scenarios. Sound financial planning is the key to building a recruitment business that thrives in the long-term and it’s vital to avoid these three common mistakes:
Not Understanding Cashflow
If you want your recruitment start-up to successfully negotiate the initial hurdles faced by most new agencies, understanding the fluctuations of cashflow is critical. For temporary-focused recruitment businesses especially, cashflow is a more complex entity than for other companies: you’ll need to pay your temporary staff on a weekly basis, often before you receive payment from your clients and, if operating margins are tight, this can be a financial headache. There are several ways that your recruitment agency can manage its cashflow, including outsourced payroll and – after you’ve reached an established turnover threshold, invoice financing.
Not Outsourcing Your Accounts And Back-Office
Start-up costs for recruitment agencies can be expensive and, while it can seem sensible to keep your accounts and back-office services in-house, you could save valuable time and money by outsourcing your accounting and bookkeeping at an early stage of your venture. By hiring an external partner to manage these services on your behalf, you will benefit from cost-effective expert knowledge that allows your team to spend more time on growing the business and securing new relationships with clients. Outsourcing accounts and back-office is a flexible integrated solution that supports business continuity and cost avoidance.
Not Receiving Monthly Management Accounts
Understanding a company's Profit & Loss statement and Balance Sheet is crucial for managing various aspects of your recruitment business, such as HMRC debtors, overhead spend, and building a growth plan. A Profit & Loss statement shows a company's revenues, expenses, and profits over a specific period, while a Balance Sheet provides a snapshot of a company's financial position at a given point in time. By analysing these financial reports, start-up recruitment agencies can identify areas of improvement in their operations and make informed decisions about how to allocate resources to maximise profits and minimise expenses. For example, monitoring HMRC debtors and ensuring timely payments can prevent financial penalties and maintain good relationships with creditors. Similarly, understanding overhead spend and identifying cost-saving opportunities can increase profitability. Finally, building a growth plan requires a thorough understanding of a company's financial position and cash flow, which can be assessed through financial reports such as Profit & Loss and Balance Sheets.
Contact us to find out more
At TBOS, we provide outstanding recruitment agency start-up advice for fledging businesses, including professional accounts and back-office support that can reduce your expenditure and improve your cashflow. For more information, please download our free guide, Starting Your Own Recruitment Agency or call us on 03456 460402 if you have any questions.
Image Source: Pexels