WHY MANAGEMENT ACCOUNTS ARE IMPORTANT TO THE GROWTH OF YOUR RECRUITMENT AGENCY?

The vast majority of recruitment agencies are set up and run by Directors who used to be recruiters in a previous guise. Although they are fantastic at recruiting and making placements, often they do not have the aptitude or interest in accounting unless absolutely necessary. Even if their accountants produce management accounts, they may not know how to read them or what numbers are important to running their business. However, understanding the monthly numbers is vital to know where the business has been and where it is now and help plan the agency’s growth.

Every recruitment agency Director should be engaging their accountants to produce management accounts at least every quarter (monthly would be advisable) and ensure that they understand how to read them and interrogate the numbers produced.

Here are the important numbers to help you gain an understanding of your management accounts:

NET ASSETS ON THE BALANCE SHEET

The balance sheet is the most important page on the management accounts, which gives a snapshot of where the company is on the date shown. The Net Asset figure at the bottom of the balance sheet shows the Director the cash position in the bank if the company were to close on the date of the balance sheet, as the debtors would be collected, and the creditors would be paid out. If the Net Asset figure is positive, then the company is solvent, and there are funds available, but if the Net Asset figure is negative, then the company is trading insolvently, and there are very few funds available to use.

HMRC POSITION (AND WHEN THE TAXES ARE DUE)

The balance sheet should also include the current funds due to HMRC, including VAT, PAYE, and an approximation of the Corporation tax. It is crucial to stay on the right side of HMRC and ensure that payments are made on time to avoid penalties and fines. As payments to HMRC are made at different times of the year, it may be best for the accountants to give a breakdown of when payments are due to help plan the cash flow for these payments.

DIRECTORS LOAN AND DIVIDENDS

The management accounts will show the amounts paid to the directors and shareholders, such as Directors’ Loans and Dividends. Dividends can be distributed anytime if the company has retained profit (after corporation tax). However, if the company has not made enough profit, then the directors can still take funds, but these will be shown as directors’ loans.

This loan must be repaid within 9 months of the company year-end (by declaring a Dividend or repaying funds to the company), or they will suffer Section 455 tax on the loan paid.

SALES, COST OF SALES AND NET PROFIT ON PROFIT & LOSS

Making placements is the most important part of a recruitment agency’s success, and these are shown on the Profit & Loss page. It is advisable to show a separate breakdown of permanent placements and contract/temporary placements on the management accounts to give a breakdown of the revenue. Contract/temporary placements will have a cost of sales element, which is the payment to the candidate, and it is also important to monitor the gross profit percentage.

OVERHEAD COMPARISON

Another aspect of the management accounts is monitoring the business’s overheads on a month-on-month basis to ensure that these are kept under control and understood. By showing them month-on-month, Directors will be able to track any increases or decreases in costs and decide which costs are working for the business.

Mayachi Ltd advises all of its recruitment agency clients (including new start-ups) to receive monthly management accounts to form the basis of the help and advice given to help grow and develop their business. Mayachi ensures that the Directors understand what the figures on the management accounts mean and helps formulate future plans based on the growth shown.

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