Surviving to Thriving in the New Financial Year

The impact of COVID 19 coupled with the imminent new financial year is inevitably resulting in a lot of people reviewing their businesses and wondering where to next? Like many, the recruitment sector has been hard hit, but in these times of uncertainty businesses need to be thinking about their business strategically. They need to be planning and being prepared for the recovery. How do you capitalise, pivot and survive to then revive and then THRIVE post COVID 19?

Deborah Power (one of our CFOs in Sydney) has been operating at senior leadership levels in recruitment agencies for many years including the Manpower Group and with smaller agencies as an advisor for the past 10 years. Deb had a chat with our good friends over at APositive, and here’s what Deb  has to say about how she is helping recruitment businesses with the rapidly evolving market, the government stimulus packages, obtaining finance and preparing recruitment businesses to thrive in the new financial year.

How are you currently assisting your recruitment clients?

We are working with businesses in survival mode to understand and obtain the government stimulus packages like Jobkeeper, cash flow boost, the various grants available and the government backed loans.
As we start to open up and come out of the current market we are now working with businesses in the revive mode ie they are optimistic about the future and looking to restart their business as quickly as possible. We are developing a number of scenario plans to determine what the business might look like in the future plus robust cashflow forecasts to determine cashflow and strategic funding needs. Scenario plans are essential to have visibility of the numbers to ensure the best business decisions are made.

What are the current challenges you are seeing with your clients in the recruitment industry?

Like most businesses, some of our recruitment clients are uncertain about the future and what their business will look like.

The challenges in the industry right now are:

1. The lack of cashflow in the business and the ability to pay staff when the stimulus packages end
2. Access to funding whether it be Invoice Financing or Banks
3. Significant reduction in temp roles and billable hours
4. Lack of perm roles at higher GP
5. Lack of diversification across their temp book. Many clients have specialised in an industry which may have been hit hard eg hospitality
6. Debtor days have pushed out due to invoices being paid later
7. Lack of Scenario Planning and actions to manage costs going forward

With Cashflow Forecasting imperative at the moment, what are the key financing decisions a recruitment business needs to consider right now?

The stage of their business is important. Is it a startup or a more mature business with a trading history? What is the current business mix temp vs perm and what will it need to look like in the future?

At different stages of the business, financing options may vary. A startup might use capital from the founders but do you want to risk personal cash reserves and assets to fund the business? Seed capital from private investors will be difficult to come by right now.

A more mature business might consider the Banks with the current low rates but  given the downturn, is now the best time to have your family home tied to your business?

Our recommendation at each stage of growth for a recruitment business is Invoice Financing through the financing of invoices.  Leverage the business assets to fund the business. Don’t restrict your opportunities by relying on finite cash reserves or personal assets..
When should businesses review their funding requirements and providers?
It is VERY important to be reviewing funding requirements and providers right now. Agencies need to be thinking what their needs will be in the next month, next 3 months and into the next 12 months. To do this we suggest a 12 month rolling cashflow be prepared.

A thorough review of Funding Providers needs to happen by considering the following:

1. Do they understand and care about your business?
2. How do their fees, structures and technology compare to the market?
3. How does the provider interact with my clients?
4. What level of service do I currently receive ?
5. Does my funding provider integrate with my systems to reduce admin i.e. payroll, timesheets, ATS?
6. How quickly and easily do I get access to funds – real time when invoice raised, same day, same week?
7. Can I be more selective with which debtors I’d like to fund?
8. Do I have any issues with concentration limits?
9. Can I take on new contracts with the confidence that my facility will grow with me?
10. Do I understand the reporting that is provided?

Will Invoice Funding be harder to obtain going forward?

With COVID-19 relief packages from the  government ( JobKeeper, tax deferrals ) and banking sector ( repayment deferrals ) all coming to an end later this year,  the major banks are provisioning for a record amount of bad debts.   This is likely to have a direct impact on their credit policies for small to medium sized businesses in hard hit industries such as recruitment & labour hire.

Funding from non bank sectors such as invoice finance providers will not change as much as the facility is based on a service that has already been completed, verified through timesheet approvals and invoiced. Financial performance volatility can be more acceptable.

In economic downturns it is also wise to separate personal assets from business risk as much as is possible, which an invoice finance / payroll funding solution will achieve for you.

A lot of recruitment businesses are in the Survive mode right now. How do clients move to the revive then THRIVE mode post COVID 19?

Firstly it is important to understand the stimulus packages available to the agency in the short term. Then to have the right funding provider in place and to build a strong long term relationship with them. We have worked with and continue to work with APositive for clients invoice financing requirements. They understand the industry, are flexible and have impeccable  customer support.

It is imperative to know your numbers, understand the KPIs that drive your business and build various scenario plans around what could or will happen as we come out of the current situation.

Review your credit control processes to ensure invoices are collected faster and risk is reduced. Diversify the temp book across different industries with different risk profiles.

Consider packaging your service offering differently. Continue talking to your clients and candidates, understand their needs now and in the short term and keep up to date with what is happening in your market.

If you’d like to know how your recruitment business’ finance function is tracking take the F Score test. This is an extremely popular tool that we have developed and used countless times over the years to help businesses thrive during challenging times.

From this you will receive a bespoke 8 page report which details the 3 main areas of strain within your finance function.

Contact Deborah  on 0419 226 697 or  fill in our contact form  and request a 1:1 complimentary discussion.

 

 

APOSITIVE are workforce finance experts, specialising in cashflow funding for recruitment, labour hire and professional services.
If you’d like to discuss how cash flow funding can help your agency, please contact Darren Cottrell on 0458 021 981 or [email protected]