Four signs you have cash flow problems
“Never take your eyes off the cash flow because it’s the lifeblood of business”
Cash flow is essential to the success of any business. Without it, a business owner will struggle to manage the financial outgoings and may end up paying out of their own pocket.
This rings especially true in contract recruitment.
It can take up to 56 days for your client to pay your agency, but your contractors want to be paid every week. With delays in your main source of income, how are you expected to balance paying your contractors and internal staff, as well as all the other costs linked to the day-to-day running of your business?
Here are four warning signs that your cash flow isn’t working for your business:
You Struggle to Pay Your Contractors on Time
Paying money out of the business on a weekly basis when it’s not coming in as scheduled is difficult to maintain. Your clients aren’t paying you on time, but your contractors still need to be paid – otherwise you’ll see your pool of strong candidates shrink. Chasing your clients is a risky move, as it could cause bad blood and lose you business.
You may find that the payments process works fine for your business on occasion, however, if either of the following is happening on an ad hoc basis, your cash flow won’t be sustainable in the long run:
- You aren’t able to pay your contractors on time
- You are having to pay your contractors from your personal budget
You Don’t Have the Resources to Place More Contractors
If business is going well, the natural step for your recruitment agency to take is to match more candidates with more clients. To continue at the same pace when there’s potential to do more will see your competitors race ahead, whilst you remain in the same cycle.
To achieve this, you’ll need to have the following:
- More recruiters in place to manage relationships with clients and contractors
- More internal employees to handle the increase in admin and paperwork
- More money to pay the extra contractors
Without these in place, you will struggle to balance the increased workload, which could result in a negative experience for your candidates and clients. Failing to meet a brief and not selling a role or a candidate can drive both away, reducing your business.
This can also affect your own team. Recruitment is a target-driven industry, and not meeting them can be demoralising. If they do not feel they are receiving the support and income to successfully do more work, your top billers may start to look elsewhere.
You’re Borrowing from Different Budgets
To pay your contractors, internal staff and cover any other business outgoings, you may find yourself moving money about between budgets. Whilst this may fix things in the short-term, constantly juggling your budgets is stressful, hard work and time-consuming.
The amount of effort put into working out which budget needs more and which can be cut from month-to-month, could (and should) be used elsewhere. Your time and energy is much better spent elsewhere.
Your Business isn’t Growing
Your contract recruitment business can end up feeling stuck between a rock and a hard place: needing the finances to pay contractors, place more contractors and grow your business being “the rock”, and not wanting to annoy your clients being “the hard place”.
A lot of recruitment businesses will focus on fast growth, making lots of placements without considering how they will manage to pay them. This approach of not thinking about next paycheck is not sustainable and does not allow for a continuous growth path.
The businesses that succeed are the ones who focus on optimal growth. They ensure they have the foundations in place so that their growth is supported by with a constant cash flow.
Without a reliable line of money, you will be unable to successfully grow and will struggle to meet the financial demands of your current business situation.
So What’s the Solution?
There are a number of processes you can put in place to reduce your cash flow uncertainty, including:
Monthly burn rate: Work out the rate at which your business uses cash each month, so you can ensure you are spending wisely and efficiently. You can use this knowledge to calculate expenditure and cut unnecessary costs.
Short-term cash flow forecasting: It’s important, as a business owner, to know if you have enough cash to pay your employees each month. Having this level of visibility ensures you have enough money in the business to make ends meet.
Scenario planning: Create a “worst case scenario” business plan so that, should you fall short, you have a financial contingency plan in place.
Invoice factoring: This is where a financier, like Sonovate, can step in and help alleviate the blockage. We provide contract recruitment businesses like yours with unrestricted finance, so that you don’t have to worry about any of the above and can focus on placing more contractors.