Recruitment directors are often not financial experts as their skills lie in securing placements, registering candidates and growing their agency via sales. As business owners and directors you need to invest time into ensuring that you understand your responsibilities and stay on top of your financial data to avoid HMRC fines and investigations, and why not keeping your books up to date can make your recruitment agency go bust.
Recruitment directors should explore using a recruitment-specific back office and accounts provider who can offer the systems and processes to outsource the financial functions and keep on top of the books and records.
Reasons why recruitment owners should keep their books and records up to date:
- BANK ACCOUNT CASH IS NOT AN INDICATION OF PROFITABILITY
When an agency is not receiving any financial data, they will often use their company bank account as an indicator as to their profitability and how much money they can spend. However, using this principle can be extremely dangerous as it may mean the director is spending VAT and Corporation tax money that is due to HMRC. As Corporation Tax is payable 9 months after the year end on the previous year’s profits this can easily be spent before it is due.
- MAKING TAX DIGITAL AND RTI SUBMISSIONS NEED FULL DATA SUBMITTED
HMRC are now asking companies to submit detailed information in real time on their PAYE and VAT submissions each month/quarter. When submitting payroll, the software needs to give breakdowns as to who was paid and the deductions made on each pay run. When submitting VAT returns, the software needs to give line-by-line breakdowns of what VAT has been charged/received and what VAT has been claimed/paid to validate the return. If the books and records are not up to date, then this may lead to fines and investigations by HMRC.
- SPENDING MORE MONEY THAN THE COMPANY IS MAKING
By not keeping up-to-date records, the agency will have no idea whether it is making enough money to cover its overheads or whether the director can take funds from the company. There have been many occasions where directors have been spending funds within the bank account beyond what was being made which has led the company into an insolvent position.
- INABILITY TO SECURE FUNDING
When a company starts to realise that they may not be in the best financial shape, often the first step is to look at alternative ways to fund the business to continue. This may be to look at an overdraft, loan or finance. However, most lenders will want to know that the company they are lending to has the ability to repay the debt and as such, will request financial figures to help secure the funds. If these are incomplete or show a decline, then this may not be a viable option.
MAYACHI Ltd works with several recruitment specific back-office and accountancy providers who complete all administration tasks for the agency directors to allow them to concentrate on growing their business. By working in partnership with these providers, MAYACHI can ensure that the numbers produced are correct and reflect a true position of the company.
