An industry advisor has developed a new checklist to help agency leaders assess their business’s performance and highlight early warning signs of distress.
From Shortlist March 2019
Navigator Consulting MD Tony Hall created the 10-question survey to help leaders identify specific areas where there is room for improvement, and recognise potential problems early.
With sustained economic growth resulting in profitable performances for many recruitment agencies, now is not the time to be complacent, he warns.
“A lot of people think their recruitment company is doing really well, so I really thought about the 10 most important questions owners should be asking themselves to really benchmark whether the business has potential for improvement and as a reality check to whether it is performing well,” Hall explains.
Questions agency leaders are asked to consider include:
Is your gross profit/net profit margin greater than 25%?
Is staff turnover less than 10% per year?
Are your average debtor days owing less than 35 days?
Is not more than 15% of your net revenue or billings from a single client?
Hall says recruitment agency owners and managers doing the survey should consider 80% a “pass mark” to feel comfortable and start developing strategies around improving weaknesses in the business identified by the survey results. Anything less than 80% calls for a serious assessment of the business.
“Profit margin needs to be greater than 25% to be a high-performing recruitment business,” he explains.
“And staff turnover, some people think it’s acceptable for 40% staff turnover because they are still doing well financially, but that’s actually not acceptable for so many reasons.
“The last [question] is a psychological one, which people don’t think about as much: does your business keep you up at night? Do you worry about all the things you have to do, the problems you have, the staff issues, the cashflow problems?” he says.
“If that’s happening, then there is some psychological support that’s required too.”
Hall, who has 20 years’ experience consulting to the recruitment sector, admits not everyone will feel comfortable to honestly assess their business.
“I think some people will be too scared to do [the survey], and some people might go through it and then not identify themselves because they are too embarrassed,” he says. “But I say just do it because it could be an eye opener and it could dramatically improve your business [with] just a couple of tweaks.”
At a recent Captain’s Table event, Hall asked attendees if they had a business plan. Of the 25 or so people in the room, just one hand was raised.
“A lot of people are doing kind of well and they are not in ‘business improvement mode’ right now,” he says.
However, he adds that now is the perfect time to build a solid foundation to sustain a recruitment business through any potential economic lows.
“I think it’s a really good time to get some strong financial reporting in place now so that if the market does change, you have plenty of warning and you can adjust accordingly,” Hall says. “What can happen, is if you don’t have good financial reporting in place and the market changes, by the time you realise there is a problem, you are six or seven months down the track and it takes longer to adjust.
“So it’s a good time to get good financial discipline into a recruitment business I believe. Budgeting, cashflow are the very basics. Almost no-one does cashflow statements but they are critical because if there is a downturn and you have a lot of debtors, and your clients stop paying you, you run out of money.”
The survey was built during the development of Navigator’s new Recruitment Business Accelerator Program, which covers 10 topics, he says.
Access the 10 questions here: https://www.surveymonkey.com/r/Z38L7GQ