Running a recruitment agency is far from being a walk in the park. There are so many struggles recruitment agencies face when it comes to managing their finances. Cash flow management is certainly one of the many concerns of businesses out there, but the challenge is even more difficult for recruitment agencies – especially for the ones who are new to the business.
Almost half of all recruitment agencies are self-funded so reserving a specific percentage of the budget to hiring professional accountants simply won’t do. Doing this will result in the agency falling short in paying other necessary expenses. In this case, a good option that calls for a fairly cheaper price involves accounting tips from experts.
Also, recruitment agencies tend to have more contractual placements than permanent ones. Temporary employees may not be paid on time by recruitment agencies due to insufficient funds, thus causing more financial issues. The probationary period and seasonal employment are also factors that may affect the finances of recruitment firms.
Paying expenses while expecting to be paid on time and managing overhead costs alone can endanger financial security. Businesses should have a stable and predictable financial situation so that their financial security will not be compromised. Because of this, many recruitment agencies are constantly wondering what steps they could take to effectively manage their finances.
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Here are four ways to effectively manage finances for a recruitment agency:
Get a payroll funding
Payroll funding is a financing solution that is beneficial for recruiters. It involves the recruiting agency to draw funds against their outstanding invoices after it has been issued. It prevents them from taking out a loan from the bank which worsens their financial situation in the long run. This also means that there is no need to place assets on the line when getting a loan to pay for expenses.
Payroll funding is an amazingly flexible solution to funding problems faced by most self-funded recruitment agencies. It gives the company access to needed cash and the interest is based on what has been spent. Most importantly, it ensures that all expenses are paid on time even if clients have not yet paid their dues. Some payroll funding services even give their clients an extra layer of protection from clients that don’t pay at all.
Use accounting software
To ease the burden of bookkeeping, it is recommended for recruitment agencies – no matter how small – to record financial transactions using accounting software. Utilizing financial technology and software tools to be used for accounting purposes will prove to be beneficial for the agency.
Help ease the workload by learning and getting your accountants to use accounting software that stores data in the Cloud. This is so that valuable information will never be lost. The best accounting software should be able to provide a real-time view of your financial statements, cash flow position forecasts, liabilities, aging debts, late-paying clients, and a feature where the software automatically detects and sends a payment reminder email to clients.
Use the right taxation structure
Substantial technical tax knowledge is a must when running a recruitment agency – or any kind of business for that matter. Tax planning before operating the business is a must. However, some do not place this at the top of their to-do list. Having an idea of which taxation structure is best used can help the business will last longer.
Having existing knowledge on taxation and tax deductions will give leverage to the recruitment agency. As an owner, knowing which services and expenses are taxable is an advantage. It can help you keep track of and make sure the company is complying with the imposed tax regulations. Using the right taxation structure can protect your business from getting sued and from incurring even more losses.
Building a strong relationship with the client
One way of ensuring that the client pays on time is by having a solid relationship with them. This is built on a foundation of mutual trust. Providing the best staffing service will encourage the client to recognize your recruitment agency’s efforts and expertise and thus pay on time. Having your clients pay on time will significantly lessen the financial challenges your business may encounter.
Aside from securing sufficient funds, a strong relationship with the client will build their loyalty to your recruitment agency. The effects of a positive client relationship can be felt by the business in the long run. This is because it’s more likely for them to recommend your recruitment agency to other companies which helps financially too.
Everything that has been mentioned above is just a few suggestions that may help in managing the finances in your recruitment agency. Yes, it can indeed be challenging at times, but the art of managing finances can be learned. It is not too late to change the way the agency handles finances. Follow these easy steps and your recruitment agency can weather any storm it will face.