Although recruitment directors’ focus for their recruitment agency is to make placements, the staple within their business is that they must complete their accounts and tax returns.
This part of the process however is rarely a recruitment director’s forte. It will often be tasked to a general accountancy firm that looks after “The Butcher, the Baker and the Candlestick Maker” instead of working with a recruitment-specific accountant.
Unfortunately, these types of accountants have many flaws which can then have a knock-on effect on a recruitment business that may be making lots of profit and therefore paying too much tax as they are not putting all their expenses through the business. Or they may be paying themselves incorrectly via a high salary instead of a low salary and dividends.
Below are some of the recent frustrations that MAYACHI has faced with Accountants within the market that have had knock-on effects on recruitment agencies:
THE DIRECTOR IS COMPLETING THE BOOKKEEPING THEMSELVES
Since the launch of online accounting software such as Xero and QuickBooks, there has been a shift in practice from accountants where they are no longer providing the bookkeeping services themselves but instead providing training to the business (often the owner) for them to complete the bank reconciliations and invoicing/expense management themselves. This process distracts the business owner from concentrating on making those all-important placements or business management, but the software does not teach the rules and regulations to complete the bookkeeping correctly. This practice is not only a drain on the business owner’s time but also dangerous if expenses are lodged incorrectly.
THE ACCOUNTANT IS PROVIDING NO BUSINESS GUIDANCE
There has become a distinct lack of advisory services provided by accountants to businesses for several years to help with business forecasting, expense management, company tax planning and how directors should remunerate themselves. Instead, Accountants are providing company figures or tax returns with no explanations, suggestions of potential tax savings or helping directors to understand their numbers. This means that more directors are not understanding their numbers and could jeopardise their own business future.
THE ONLY FINANCIAL REPORTS BEING PROVIDED IS VAT RETURNS AND YEAR-END ACCOUNTS
Many new directors are oblivious to how their agency is performing as accountants are reluctant to offer management accounts as part of their service. This means the first time the agency directors see their numbers are often 6-9 months after their year-end when they have very little opportunity to do anything about the previous year’s profits. They may offer the agency to complete the VAT returns but providing management accounts is too much work so is often not even mentioned.
NOT UNDERSTANDING HOW RECRUITMENT AGENCIES WORK
There have been many instances where accountants have not understood certain processes within a recruitment agency process and therefore not provided the correct data. An example is when an accountancy firm only accounted for the profit of an agency using a pay-and-bill provider instead of bringing the turnover and cost of sales into the figures thus missing out on hundreds of thousands of pounds of turnover. Another example is when an accountant did not complete the Intermediary Reporting for an agency, and they were fined over £3,000 for missing returns.
THE NUMBERS PROVIDED ARE INCORRECT OR MISSING
One of the biggest frustrations is that accountants are providing figures based on requesting information either once a quarter or sometimes once a year. This means the agency director must go back through emails or to suppliers requesting copies of invoices or receipts to provide to the accountants as they are not completing the work as they go along. Accountants are also not spreading annual costs over 12 months and instead opting for the agency to lose profitability by having annual expenses put into one period. This can cause the figures to be incorrect and the agency to not show a true reflection of their overheads.
MAYACHI Ltd works with recruitment agency directors to understand their numbers to help with the growth of their business. However, on many occasions, the quality of the current financial figures has not been up to scratch and so MAYACHI will make recommendations to the agency to move to a recruitment specific accountant who can provide the required services to ensure that the business can grow to their potential.
