Managing Risk in Turbulent Times

What risks await recruiters in uncertain times? And how can they be contained?

1. Reduce dependency on one client for a major proportion of your income. Spread sales across a wider client portfolio and if a major client ceases to trade swiftly reduce overheads or replace the lost sales. Debtor protection can also cushion the blow of client insolvency.
2. Investigate the reasons for big last-minute requests for temporary workers from new customers; businesses that are in trouble often hire temporary labour to cover for staff being made redundant or who are quitting because their employer is failing. Make credit checks a priority and get debtor protection cover in place. A last-minute order from a new client could signal that their previous agency has withdrawn its staff for non-payment of invoices. A discrete enquiry might save a lot of trouble.
3. Review any new business opportunities that require an increase in fixed costs (such as a new lease or more permanent staff). If this raises your break-even point by more than the net profit generated by the opportunity it’s a bad idea. Even if this is not the case, bear in mind that higher fixed costs are expensive to get out of if the strategy fails.
4. Know the sensitivity of your company’s cash flow to changes in the length of credit taken by clients. An increase of 7 days in the average time taken by your clients to pay you requires you to find funding for an extra week of costs. Be wary of clients that wish to negotiate longer credit unless they are also willing to pay a higher margin to cover your interest costs.
5. Identify your break-even point and how far you are above it. If you could lose 25% of your turnover and still cover your overheads you are far less vulnerable than if your turnover is only 10% above the break-even point.
6. Our records show that recruiters with the lowest proportion of fixed costs to sales survive and thrive better than the rest. One strategy for reducing fixed costs is to outsource activities such as the back office – if this solution appeals to you please enquire about our specialist pay-and-bill services for temporary workers.