The cash flow roller coaster will pay a visit to most recruitment organisations at one point or another. I know it did for both mine and Katy’s previous organisation and more than once.
If you are ambitious with big growth plans, it’s a smart idea to plan and in many ways.
There are a number of longer term strategies to reduce this impact; like having a honed marketing and sales system that we are covering at one of our events in May. Plus many other systems around performance that we teach on the various Centredexcellence programmes.
First, though it is a good idea to review some basic cashflow strategies that work in setting up your business the right way.
In the long-term, free cash-flow, equity and debt financing are the best sources of working capital. However, these options aren’t always available to SME organisations which are the category many recruitment companies fall into.
A logical first step is to make more placements at a high fee value which we will cover in another post. For now, let’s look at some practical steps.
Get A Good Accountant
Though there are many software applications available that will help you manage your finances, you can’t beat working with a good accountant. In today’s economy, you will find excellent providers who will even help with management accounts and your cash flow forecast which leads me onto the next point.
Income in and Expenses Out
I don’t want to teach grandmother to suck egg’s, and you need a forecasting tool or system to monitor outgoings and revenues.
It still surprises us that some companies don’t have a 120-day forecasting process.
In recruitment, it’s not always quite as easy to predict income for an entire year unless you are a preferred supplier or work on retained only. However, a rolling 3 to 4 months should be more than possible. (Our KSF system does make it easier which you can read about here.)
If you aren’t doing this currently, get your profit and loss statement from your accountant and export it into a spreadsheet. Though it might not be totally accurate, it will give you a sense of where you are from and income and expenditure point of view. This will help, at some level, your ability to predict your expenditure. Which leads me onto the next point.
Look for Patterns, and It Will Get Better
My own mentor says regularly that money loves speed and attention; it does! This consistent review gives you great data that both your conscious and subconscious mind can work on.
Though in theory, some recruitment sectors have challenging months you can plan for this both from a forecasting and spend perspective.
If you service the corporate sector it might be that August and December are light, whereas February goes bonkers as does June and November.
Your Invoicing Process and System
Though you are probably super keen to bring onboard a new client make sure they understand your T’s and C’s and ensure they are totally clear on your invoicing and the follow up process.
Though retained is a great service to offer and not everyone says yes, it’s always worth asking for an advance payment especially if it’s a role that is business critical for your new client’s organisation.
In our personal lives, many of us save regularly. This should be the same in our business life too. One of our clients even has separate savings account attached to his business account that is his VAT, Corporation tax and savings pot.
Have A Budget for Areas That Fuel Business Growth
This is an area that many recruitment organisations fall down on. It’s the age-old question about costs versus investment.
Certain areas of expenditure will boost profits whereas others won’t. Consider where additional spend is a good idea.
For instance, staff and your own training and coaching will increase skills and capabilities. What about marketing?
If you talk to some of the most profitable companies on the planet, they allocate a percentage of turnover to their marketing efforts. Dependent on the industry this could be anywhere from 10-25% of turnover. More ‘targeted’ leads coming into your highly-trained team who can convert opportunities I would respectfully suggest is a good use of your cash flow.
Want to know more? Then we are running an event at the end of June where we will be sharing a system to develop cash flow predictability in your recruitment organisation. Email me here to find out more.