The Importance of Management Accounts to Recruitment Agencies

THE IMPORTANCE OF MANAGEMENT ACCOUNTS TO A RECRUITMENT AGENCY

As a recruitment agency owner it is important to know if the business you are running is profitable and on the right track to achieve the goals and targets set.  The only way to monitor this is to ensure that you receive correct and up to date management accounts on a regular basis.

However, from our experience of speaking to recruitment agencies it appears that agencies either; don’t receive management accounts on a regular basis, their management accounts are late or they do not understand them as their accountant has not talked them through with them.  All of these reasons mean that an agency could be making decisions about taking on additional staff, changing computer systems or moving offices without knowing if the business can afford it or sustain the extra monthly cost.

We understand that recruitment agency owners are normally recruiters or sales people,  and often have 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.

Below are some of the reasons why management accounts are so important for recruitment agency growth:-

  1. ANALYSE YOUR RECRUITMENT SALES

Every recruitment agency can only survive if there are placements being made each month and 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.

  1. 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 can ensure that when you start to grow your business and take on additional overheads that you have enough capacity in your profit margin to avoid going backwards.

  1. 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 that you can take advantage of.

  1. PLAN HOW YOU WILL BE PAID

As a recruitment agency owner there are a few methods of taking funds, in the most tax efficient way, from the business, such as; salary, dividends and expenses.  However 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.

  1. 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 you pay all of your liabilities.  Your profit and loss shows 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 and help you to plan your future exit strategy.

TBOS has always instilled the importance of management accounts to all of its agency clients and as part of the service level agreement 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.

In most cases TBOS also have regular meetings with the agency owners to help plan the next stage of the business growth or look at ways to improve the company value for future sale.

If you would like more information on the services provided and the cost for TBOS to provide your agency with management accounts then please do not hesitate to contact us.