Margin per placement, and the cash to fund it

Two businesses, one profit and loss account

Permanent recruitment produces a large fee for a short piece of work, and the fee is not truly yours until the rebate period is over. Contract recruitment produces a small margin every week, forever, and consumes working capital while it does it.

Reported together they average into a number that describes neither. Reported separately, most agency owners find the picture is not the one they had in their head.

What we do

Margin by desk, by consultant and by client. Perm and contract separated, with the real cost of each placement carried through rather than assumed.

Contract funding, forecast weekly. What is going out to contractors, what is coming in from clients, and what the gap will be twelve weeks from now.

Rebate exposure on the perm book. Fee income invoiced against fee income likely to be kept, so nobody plans a hire on money that could still go back.

Consultant performance against cost. What each desk brings in against what it costs to run, including the ones still building.

Working capital as the growth constraint. How many more contractors the agency can carry before the facility or the balance sheet is the thing stopping it.

The statutory work. Year end, corporation tax, payroll and VAT, prepared and signed by our qualified accountants.

The number owners usually ask for first

Cash. In a contract heavy agency it is the only number that behaves differently from the one on the profit and loss account, and it is the one that decides whether a good month is a good month.

We forecast it weekly, twelve weeks ahead, with contractor pay runs and client payment behaviour in it rather than an assumed thirty days.

Who this is for

Permanent, contract and mixed recruitment agencies turning over £500k to £5m across Surrey, Sussex, Kent and the South East. Agencies growing a contract book and feeling the cash cost of it. Agencies where the owner can name the best biller but not the most profitable desk.

The structure of the monthly pack is on the management accounts page. If you want an outside read of the business before you speak to anyone, The Outside View is free and built only from public sources.

Common questions

How do you measure margin on a contractor placement? By taking the charge rate to the client less the pay rate to the contractor, then deducting employer costs, holiday accrual, apprenticeship levy where it applies and the cost of funding the gap between paying the contractor and being paid by the client. What is left is the real margin, and it is usually smaller than the headline spread suggests.

Why does a growing contract book run out of cash? Because contractors are paid weekly or monthly and clients pay on their own terms, so every additional contractor increases the amount of working capital the agency is funding. Growth in a contract book consumes cash rather than producing it, which is why the forecast matters more than the profit and loss account in a growing agency.

How should rebates on permanent placements be handled in the accounts? A permanent fee is only earned once the rebate period has passed, so an agency with a large recent placement book carries real exposure that a straight revenue figure hides. AI Finance Partners reports the placement book with the rebate exposure alongside it, so the board is looking at fee income it is likely to keep rather than fee income it has invoiced.

Can you work alongside our back office or funding provider? Yes. Many agencies use a back office bureau or an invoice finance facility for the contract book. We work with what is already in place, take the data from it, and produce the management reporting on top. Nothing has to be ripped out for the numbers to become useful.