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Managing Cash in your Recruitment Business

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I would say the most dangerous trap most recruiters fall into when becoming self-employed for the first time is failing to manage cash flow. The adage you must not forget when you first set up is:-

“Placements are vanity, invoices are sanity but CASH is king!”

This may seem obvious but when you’re employed you often have no connection to cash collection; you bill, someone else invoices it and you get your commission, easy. Also when you’re employed you will be taxed at source i.e. the money that goes into your bank account has had the tax taken out already so you have no connection to how tax works. Finally, you don’t see the bills coming in that run the recruitment business that employs you, never mind managing who gets paid and when. However, when you run your own business it’s a whole different ball game, not only do you have to manage cash collection and all the bills that come with being a business owner, but you have to get your head round and budget for the 3 different tax bills; VAT, personal tax and corporation tax (business tax). So it’s hardly surprising recruiters struggle with juggling generating cash i.e. billing with managing cash. It’s hard enough budgeting for regular bills but then add in the 3 tax bills that seem to punish success as well, it takes an iron will not to spend some of that cash in the business account on those long sought after trappings of success while you wait for these really big bills to drop through. Sorry if I’ve made this all sound a bit of a nightmare but a business that runs out of cash is just the same as a car with no fuel, its no use to anyone!

SOURCE: davidsongray.co.uk