As we are coming to the end of the current year, many recruitment businesses will be considering their plans for next year so they can target their staff and ensure that they meet their financial goals for the future. However, most recruitment directors do not know where to begin when it comes to creating their recruitment agency projections and will often make incorrect assumptions or over-cook their sales without fully understanding the costs within their business.
Projections (when done correctly) can be a great tool to motivate directors and staff on the financial rewards that the company can achieve and help guide the business on when to take on new staff and overheads. The best approach to creating financial projections for a recruitment agency includes the following:
START WITH HOW MUCH MONEY YOU WANT TO TAKE OUT OF THE COMPANY
The best way to start the projections is to know how much money you want to make. If you know the end profit number and the overheads, then you can work out what the gross profit based on sales should be. For example, if you want to make £150k then add back corporation tax at 25% to get £200k net profit. If the company overheads are £200k per annum, then the agency would need to do £400k in gross profit. The turnover would depend on the agency make up of permanent and/or contract placements (using the company average gross profit).
BE REALISTIC ABOUT THE BUSINESS GROWTH IN YOUR RECRUITMENT AGENCY PROJECTIONS
One of the biggest pitfalls of producing projections is the director’s tendency to be overzealous in the business growth. It is always best to be realistic or even slightly pessimistic about the growth of placements in the following year. By over-projecting gross profit, it can be counter productive should the agency fall behind target by a large margin within the first 6 months of the projection start dates.
KNOW THE TRUE COST OF YOUR OVERHEADS
When producing projections, it is best to know what the agency is spending money on monthly such as staff costs, office costs and expenses. Some overheads will be fixed monthly costs whereas others may be based on number of staff members or turnover (i.e. recruitment funding costs). It may be a good opportunity to review all the current costs to see if they are necessary or see if the costs will increase over the next 12 months.
WHEN ADDING NEW STAFF, UNDERSTAND THE IMPACT ON COSTS AS WELL AS SALES
One of the great parts of projecting is seeing the business growth by taking on new staff members. However, every staff member not only impacts sales and has a salary cost but there are other costs to also consider. Costs such as Employers National Insurance, pension contributions, staff benefits and desk costs (furniture, computer costs, software licences, telephone bill increases, etc). When adding new staff members, there needs to be a consideration of when they will be making their first placement (which could be around 3 months) and it could also take 6-12 months for the new staff member to become profitable.
DO A FIRST DRAFT OF YOUR RECRUITMENT AGENCY PROJECTIONS AND THEN COME BACK TO THEM THE NEXT DAY
Making financial decisions for the next 12 months need to be carefully considered and done correctly as they will guide your business into the following year. It is always best to do a first draft of the projections, save them and then come back to them the next day or a few days later. Sometimes it may be best to do the first draft of the projections 2 months before the year end, review then the month before the year end and then give a final review within the first 2 weeks of the new financial year to ensure that any last-minute changes have been made.
All MAYACHI clients are offered the opportunity to create projections for their business as a way of helping the directors to set the business targets and measure their achievements over the next 3-, 6-, 9- and 12-month periods. The projections produced by MAYACHI also focus the directors on when they can take on new staff members, distribution of profits, and help them achieve their company growth with the possibility of a future agency sale in their minds.
