The recruitment industry is one which is heavily reliant on finance. Those of you who run a contractor book will be astutely aware of the stresses and strains of cash flow management. Delays between paying weekly wages and collecting invoices from customers can leave your business significantly exposed. Some of you will be fortunate enough to be able to fund your contractor book out of existing working capital, whilst a lucky few of you may be able to benefit from extensive equity/debt backing from investors.
For everyone else, establishing the right type and right level of funding can be a confusing process. Set out below are few of the more popular solutions.
Factoring involves your business selling its debtor book to a lender (a factor). Lenders tend to be high street banks and specialist providers, although many more are entering the market. The key features of such lending include:
- Advances of between 80% – 100% of the debtor book are typical depending upon risks associated with customer concentration, customer location and credit checks;
- Once the customer pays, any amount not already advanced becomes available for further distribution less any fees payable;
- Monthly interest charges on the amount advanced;
- Ongoing service and facility charges apply;
- Credit control responsibilities are assumed by the lender;
- The lender may offer to protect you against the risk of bad debts (without recourse) or you may assume the risk (with recourse). The former being more expensive;
- Where debts are not settled within the terms of a with recourse agreement, any advances made can be clawed back.
Unlike factoring, invoice discounting does not involve a sale of your debtor book. There are many more lenders on the market, be they high street banks, challenger banks or specialist industry providers.
Many of the facets of this type of lending are similar to factoring with the main differences being:
- lower fees
- credit control responsibility remains in-house
- no possibility of “without recourse” arrangements
- higher lending percentages
- bad debt protection is ordinarily offered unless covered by a credit insurance policy
You are more likely to be in a position to negotiate a better deal due to the competitive nature of the product. Some lenders are offering fixed fee proposals and very quick set up promises, whilst others now lend on an invoice by invoice basis.
Whatever your sector, whether you are a perm, temp or mixed business, there are plenty of finance solutions available.
We have many contacts in the industry and as we are completely independent, we are able to put you in touch with the relevant providers and guide you through your options.
Crowdfunding comes in a few forms. You have some platforms which help businesses raise debt or equity finance, you have platforms that raise funds with no real expectation of monetary return on the part of those advancing the funds – Kickstarter being an example. Then, you may also see companies raising finance from the crowd directly in exchange for rewards (and perhaps a monetary return too), this has proved popular and effective amongst food & drink retailers – beer, wine and chocolate are some examples that spring to mind.
For Recruitment businesses though, it’s really about either the debt platforms or the equity platforms. You can find out more about the advancements in crowdfunding, but some of the top tips when considering looking at crowdfunding are:
- Don’t take the process lightly, and expect the platform (and perhaps some of the lenders/investors) to ask some or all of the questions that a bank or private equity house would. They won’t want to feel as if they’re throwing their money away, and questions that go unanswered may give them that feeling.
- Really understand the key documents, for example the loan facility agreement or the investment agreement, and what happens at key stages e.g. if you default on a loan, or you want to exit the business.
- Take advice on how much this is costing you. It may, on the face of it, appear cheaper to obtain finance via one of these platforms, but watch for hidden costs in the set up phase and beyond.
- If you can get some family and friends involved in setting the ball rolling when you list on one of the platforms, observers have noted a herd mentality with money attracted to listings which already have some momentum.
At Recruitment Accountants we work with a number of financing partners who can assist in many of the financing and funding requirements your agency is likely to face. To find out who our financing partners are, please click here.
The next step
If you feel you would benefit from corporate finance advice and would like to discuss the services we can provide for your business, please call us on 0845 606 9632 or email us at firstname.lastname@example.org
The recruitment sector is a well known hotbed of M & A activity, and growth by acquisition is very much at the heart of many strategies, and there are a number of ways in which we at Recruitment Accountants can help you to execute an acquisition strategy.
Whilst we are regularly supplied with details on recruitment businesses for sale (and these can sometimes present great opportunities), if your growth plan includes making strategic acquisitions it’s much more likely that the right target for you isn’t actually being marketed for sale. Bearing that in mind, we can take on acquisition mandates that start with helping you to determine the key criteria for a strategic acquisition. Once that’s done we will pool our knowledge of the sector with your own, as well as utilising our research tools to arrive at a list of suitable targets. We will then make approaches to your target list on your behalf so that we can gauge levels of interest. After that, we move into a phase of initial meetings to see if a deal is a realistic possibility.
Once you have identified a target business, we can work with you to identify what they key value drivers are in that target, what you should be prepared to pay, and how a deal should be structured. Once the headline terms of a deal are agreed, we can then perform financial due diligence on the target providing assurance over the numbers you are basing your offer on. We will also work with your legal advisers throughout the deal to completion. If you require external finance to fund the deal, we can introduce you to a range of debt and equity finance providers, and assist with the finance proposals you will need to submit.