Management Accounts Are Vital For Business Growth
Recruitment agencies are often run by previously top-billing recruiters who have set up their own business to grow something for themselves, rather than lining the pockets of their previous employers. However, as many recruiters will have had minimal experience in back office and accounting processes, they may not realise the benefits of regular management accounts, so will often not engage an accountant immediately or request that management accounts are produced on a regular basis. This can mean that some agency owners aren’t receiving any financial information on their company until their year-end accounts are produced - which can be up to 9 months after the year-end. This can mean that data can be 21 months out of date and therefore not particularly useful in terms of day-to-day management.
There are many advantages to receiving and understanding either monthly or quarterly management accounts so that as a director, you can plan and grow your agency.
- SHOW YOUR CONTRACT AND PERMANENT SALES PROFIT
The Profit & Loss page should give a breakdown of the temporary, contract and permanent sales made and the subsequent profit generated from them. If your management accounts are produced on a monthly basis then you can start to monitor trends of sales in order for you to project future sales and cash-flow.
- ALLOW YOU TO MONITOR YOUR OVERHEAD SPEND
The Profit & Loss page should give a breakdown of the agency costs including staff salaries, travel and entertainment, computer, marketing, accountancy fees, finance costs and bank charges to name a few. If your management accounts are produced monthly then you can monitor each overhead to see if there are spikes in spending or if there are ways of cutting excessive or unnecessary costs.
- WHAT DO YOU OWE HMRC?
The Balance Sheet should split out current HMRC liabilities such as VAT, PAYE and give an approximation on the Corporation tax owed. In order for you to be able to plan how much of your bank balance can be spent whilst still keeping up with your HMRC liabilities, you need to know how much is due and when they need to be paid.
- SHOW HOW MUCH MONEY YOU ARE OWED IN AND HOW MUCH YOU OWE OUT
The Balance Sheet will show you the money you are owed from your clients (Aged Debtors) and the money you owe your suppliers and contractors (Aged Creditors). It is important to know how much money you are owed at any time in order to manage your cash-flow so you can pay your suppliers.
- ALLOW YOU TO PLAN HOW MUCH YOU CAN TAKE FROM YOUR BUSINESS Business owners are able to take dividends from their business as long as the company is making profit. However, if the owner takes funds from the business when there are no profits available then this will be shown as a Directors Loan which needs to be repaid either by making profits later or putting the funds back into the company. If the Directors Loan is not repaid within 9 months of the company year-end then the owner may be liable for additional taxes.
- GIVE AN INDICATION OF THE COMPANY VALUE
Management Accounts can give you an idea of the company value by showing the turnover and profits generated on the Profit & Loss page but also the funds available should the company stop trading, this is found on the Balance Sheet page.
It is important that if management accounts are provided to the recruitment agency owners, they ensure they understand them in order to reap the maximum benefits from them. They can be used to plan future cash-flow requirements, produce sales projections and targets, manage staff productivity and ensure that overheads do not get out of control.
Recruitment agency directors should be insisting that their internal or external accounting team are providing regular and up to date financial reporting, including management accounts, to form the basis of any growth plans for the future as well as monitoring the current status of the company.
Stewart Roberts - Commercial Director
Total Back Office Solutions Ltd.
Tel: 0345 5046333