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If you’re an ambitious recruitment agency with growth on your mind, then staying on top of your finances will be key to your future success.
Choosing a finance deal is one of the most important decisions you’ll need to make. To bridge the gap between paying contractors and getting paid by your clients, you’re likely to need some form of invoice factoring and there are various options available to you.
There are also many choices to be made when it comes to how you will manage the back office functions associated with this, such as your payroll and financial administration.
For example:
Establishing a strong back office function, with robust systems and processes capable of scaling up and evolving with the changing needs of your business, is crucial.
Whatever set up you favour for your recruitment agency’s financial infrastructure, it’s not a decision to be taken lightly. You could be laying the foundations for your company for the long term. Which is great, as it will leave you to focus on what you do best - growing the business – safe in the knowledge your operations are in great shape.
It’s therefore important to ensure you are making an informed decision. That means crunching the numbers until you have an accurate picture of what the cost of your back office really is - and what the implications of each potential structure may be.
While on paper this may sound like a simple enough exercise, many elements need to be taken into account (including some things that are often overlooked). The good news is your time and efforts will be well spent. Once you’re armed with the facts, you’ll be in a far stronger position to make the right choice for you.
As a starting point, here we’ve taken a closer look at the different factors you need to consider when assessing the true cost of your recruitment agency’s back office. From manpower to administration, compliance to technology, here are some pointers to help ensure your decision adds up.
Your finance deal
If you opt to secure finance from your bank, or another lender, it’s important not to just think about the headline cost. There are likely to be set up costs, minimum fees and of course the interest to cover, along with associated penalties - you will need to reach a minimum turnover level or face extra penalties. There will often be restrictions with concentration levels too – having just one client, for example, may be a problem. Your lender may also require you to invest in suitable back office software and operational staff.
You need to consider what level of finance is going to be critical for the business. How much you can afford to repay and how much you would need to pay to fully clear the loan. Ensure you are comfortable with the financial risk you are taking on and the repayment terms, including frequency of repayments, interest rate and length of borrowing. Check you fully understand what the fees are based on and whether they’re fixed, and include VAT.
Your time
This is something many business leaders overlook. Even if something is on paper ‘free’, if it requires your time to do it then it comes at a cost. Your time has an equivalent monetary value and there are often indirect costs that can kick in.
When working out the cost of your back office function, you need to consider how long it may take you to set up and understand the different technologies, including managing the money side of things and all systems and processes.
Can you break all these time commitments down into hours per week? Consider what else you could be doing with that time instead and what it might mean for the success of the business, were you to have it back? The value could be far more significant than you realise.
Then there are the important, time-heavy tasks that can also crop up, such as chasing debt and monitoring risk. If you don’t spend time on credit control, it can put your business at risk. Can you manage your time to give due care and attention to all these issues, as well as handling your day-to-day operations and recruitment?
Inhouse staff
Staff costs are another area that is often underestimated. Base salaries aren’t the only factor you need to think about when calculating the true cost of employing someone inhouse.
The first outlay will be the time and cost it takes to advertise and recruit somebody. Then there are equipment costs, such as phones and laptops, travel expenses, pension contributions, bonuses and other employee benefits.
From a management perspective, there will be training, ongoing supervision and HR functions to complete. Plus, the cost of paying for temporary cover, where needed, for holidays and sick leave.
Outsourcing
If you outsource components of your back office functions, then you also need to consider the costs accrued from all the different providers for the technologies and licenses you might need.
Time is again a factor. How much time are you spending logging in and out of different systems? And on buying add-ons to aid the integration and evolution of such systems as you grow? What about onboarding, training and updates? How much extra might you pay your accountants to handle these additional functions for you, if you enlist their services?
One of the general benefits of outsourcing, however, this is that you pay for what you use. If you pay as you go, you’ll pay more in very busy weeks and nothing when you are quiet. This flexibility can enable business to be precise about costs and not pay for something when it’s not needed.
Timesheets and payroll
Timesheets and payroll are two crucial functions for any recruitment agency.
How much of your time, or your employees’ time, is it taking to run these functions? How much does the software itself cost you? Does it include a clear and easy to use dashboard that can be tailored for your business? Can it integrate with your CRM and other software you are using, or do you need to purchase bridging tools?
What happens if there are any mistakes and delays, how is that handled and what are the implications for the business – both financially and to your reputation?
Perception
The value of the experience you provide (i.e. what it’s like to work with you), whether as a customer or contractor, should never be underestimated. How you choose to run your back office and daily operations will heavily impact on the experience people have. Every aspect of how you do business can influence reputation, retention and business growth. The quality of your services needs to be consistent across all levels and functions. Having the right technology in place, the right expertise supporting your service delivery and the flexibility to adapt are all keys elements in maintaining this value.
Staying compliant
And finally, how are you ensuring you are compliant? For example, with IR35 and intermediary reporting for HMRC? What courses, training or software are you investing in?
What external or internal support is needed to help you stay on top of your compliance and up-to-date with any changes that are brought in? What are the potential consequences and financial implications of a slip-up here?
In summary
For anyone reviewing their current finance deal and back office functions, there is a lot to consider if you’re to understand what the true cost implications may be. Our top tip is don’t just take the headline figure. Look for those hidden costs – including any time implications and what that time might be better used for were you to have it back. That way you’ll ensure you have an accurate picture and can make an informed decision.
For more pointers, check out our handy checklist...