As a recruitment agency owner, you’re constantly looking forward: to the next placement, the next big client, the next market change.
But sometimes it’s important to just stop and reflect on where you are, particularly in terms of your finances.
As we enter July, the halfway point for many financial years, there’s no better time for a financial health check!
In this blog we explore why a mid-year review is important and the different areas you should take a look at:
The Importance of the Mid-Year Review
While a comprehensive year-end audit is essential, a mid-year financial health check serves a different purpose:
- Early Warning Signs: It’s your chance to spot potential issues (like declining profit margins, rising costs, or slowing cash flow) before they become major issues.
- Course Correction: If your agency isn’t performing as expected, a mid-year review gives you enough time to adjust your strategy, cut unnecessary expenses, or ramp up sales efforts.
- Opportunity Spotting: You might uncover unexpected areas of profitability or opportunities for investment that you can capitalise on in the second half of the year.
- Budget Realignment: Markets shift, things are getting more expensive, so your initial budget might no longer be realistic. A mid-year check allows you to realign your budget.
- Preparation for Year-End: By tackling some financial analysis now, you’ll make your official year-end processes smoother and less stressful.
Key Areas to Examine During Your Mid-Year Financial Health Check:
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Profit & Loss Statement Review
- Revenue Analysis: Compare your actual revenue against your projected revenue for the first half of the year. Are you hitting your targets? Identify which services (perm, temp, contract) and sectors are performing best.
- Cost of Sales: Analyse your direct costs related to placements. Are these costs increasing unexpectedly?
- Operating Expenses: Go line by line through your overheads. Are there any expenses that are higher than anticipated? Can anything be cut or negotiated? Look at software subscriptions, marketing spend and administrative costs.
- Gross vs. Net Profit Margins: Are your margins healthy? A decline might indicate inefficient processes or that you’re underselling your services.
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Cash Flow Statement Analysis
- Income vs. Outgoings: Examine the actual movement of cash in and out of your business. Are you consistently positive, or experiencing significant dips?
- Debtor Days: How long are clients taking to pay you? Long payment terms can severely restrict your working capital.
- Payroll Obligations: Are you comfortably meeting your weekly/monthly payroll for both internal staff and placed candidates?
- Finance Options: Our 100% recruitment funding ensures your payroll is covered regardless of client payment terms, creating predictable cash flow that’s crucial for mid-year stability.
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Balance Sheet Snapshot
- Assets vs. Liabilities: Get a clear picture of what your agency owns versus what it owes.
- Working Capital: Do you have enough short-term assets to cover your short-term liabilities?
- Debt Review: If you have any business loans or lines of credit, review the terms and ensure they’re manageable.
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Budget vs. Actual Performance
- Compare every line item in your initial annual budget against your actual spending and revenue for the first six months.
- Identify significant variances. Why did they occur? Are they actually variances or are they recurring?
- Adjust your budget for the second half of the year based on these insights.
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Compliance Check
- Review any upcoming tax deadlines or changes in employment legislation.
- Ensure your payroll processes are up-to-date with the latest HMRC requirements.
- Verify data protection compliance (GDPR).
We’re Here to Help!
A mid-year financial health check isn’t just about crunching numbers, it’s about making informed decisions that will drive your agency’s success in the coming months.
However if the thought of diving into your financials feels overwhelming, we’re here to help.
Use our accountancy service created for the recruitment industry and we can do the leg work for you!
Don’t wait for year-end surprises. Take control of your agency’s financial future today with a proactive mid-year review.
Get in touch to see how we can support your financial health.
