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Recruitment agencies: Why you need regular management accounts

Management accounts can be extremely useful tools for recruitment agencies to work out where they can grow and improve. However, you need to make sure you’re looking at them regularly.

While your particular business might have its own specific goals, when it comes down to it all recruitment agencies are set up to make a profit in the long run. However, in recruitment, it can be hard to come across stable, regular income, with clients coming and going and recruitment needs changing frequently.

In order to run such a business effectively, you need to make sure you’re utilising management accounts. These are simply sets of mostly financial data that show you the basics of how your recruitment agency is performing. You won’t see a breakdown of every expense claim, but you will be able to quickly see how much profit or loss you’ve made.

While this might seem like common knowledge to you, it’s not too many recruitment agencies. In fact, the Association of Professional Staffing Companies (APSCo) reports that few agencies receive regular management accounts, while those that do often don’t understand them.

It’s important to do this on a regular basis, at least once per quarter if not once per month. This way, you can spot trends or problems well in advance, and react to them accordingly. If you’re not convinced, here are a few more reasons why you should be making use of regular management accounts:

Understand financial trends

How much gross income did your agency bring in this month? What were all its costs? What about last month? These are the basic pieces of data you’ll get from management accounts. In the long term, you can use simple statistics like these to plot out trends, which can then be used to better plan for the future.

For example, you might notice after a year of management accounts that your gross profit dipped in July, and the same thing happened last year. Using just this limited data, you can try to ascertain what caused this. Maybe you have a lot of staff off on holiday in July, meaning you’re paying wages but not being as productive.

This is especially necessary for recruitment, as it can be easy to put so much work into filling placements that they’re no longer profitable. Regular accounts can alert you if this is happening, giving you the chance to fix it as soon as possible.

Be aware of your agency’s worth

A recruitment agency, like any company, is an asset. Whether you’re working for shareholders or you own the business yourself, you’re going to want to know how much it is worth. This way, you can identify methods of increasing its value, making it more likely to attract investment and pay out dividends.

This isn’t just a matter of profit and loss. You also need to know what the total value of your assets is, as well as the value of your debts. If you took out a loan to get your agency off the ground, for example, then your business agency might not be worth anything even if you’re making a profit.

This is something to be aware of each month. You don’t want to be surprised by the fact that your agency is spiralling into debt. Equally, if your business has become extremely valuable, you might want to sell it off. Without knowing how much it is worth, this will be impossible to achieve.

Combine financial and other data

Of course, your management accounts don’t just have to be made up of financial data. They should absolutely have the more important figures in them – it would be unlikely for you not to want your incoming cash flow and outgoings in there, for example – but you can also include facts and figures that are more relevant to your agency’s specific key performance indicators (KPIs).

For example, you might want to expand your social media recruitment. In this case, “the number of candidates found through social channels” might be a KPI you want to track each month with your management accounts. This way, you’re not just measuring how well you’re doing financially; you’re also tracking statistics that are pertinent to how you want to do business.

 

Boomerang Back Office are XERO accredited accountants – get in touch to see how we can help.

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