Financial advice for directors of recruitment agencies struggling with cash flow

Updated: 3rd January 2021

Running a recruitment agency can be an extremely rewarding experience, both on a personal and a financial level. However, should business take a turn for the worse, problems can quickly mount up and your cash flow can end up suffering. Without a healthy cash flow, many companies will struggle to make the required payments to clients, suppliers, and even HMRC. The knock-on effects of this can be disastrous, impacting on the company’s reputation and the likelihood of its clients continuing to do business with them.

Cash flow issues

Recruitment companies can experience cash flow issues due to a variety of underlying reasons. This could be a reduction in turnover, decreased profits, or as a result of suffering bad debt or late payments from customers. Perhaps a key client has moved their recruitment processes in-house or has taken the decision to switch to a competitor. When a major contract is lost, the clock is ticking to replace this source of work as cash flow can quickly dry up in the absence of a regular contract you came to rely on.

Regardless of the reasons behind it, cash flow issues should be responded to in the same way – that is quickly and with the assistance of a professional. If nothing is done to correct these cash flow issues, a company can rapidly find itself spiralling into a state of insolvency. Early intervention with professional help means a large array of business rescue and recovery techniques can be considered, giving the company the very best possible chance of recovery.

How can a time to pay arrangement help save your recruitment agency?

For a company which has fallen behind on its tax obligations, a time to pay (TTP) arrangement could be the ideal solution. As the name suggests, TTP arrangements give a company an extended amount of time to bring their PAYE, VAT, and corporation tax liabilities up to date. This is typically done through a series of monthly instalments usually for no longer than 12 months.

Although a TTP may sound like a good solution to your problems, there is no guarantee HMRC will agree to putting one in place. You must be able to show your company is capable of being a profitable business in the future, as well as demonstrating your ability to keep up with the agreed monthly repayments on any deal discussed. Should HMRC have reason to doubt either of these factors, there is a good chance they will refuse your request for additional time to pay. We can help you negotiate a TTP arrangement with HMRC, giving your business the chance to trade out of its current financial difficulties and work towards a prosperous future.

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Owe money to more than just HMRC? A CVA could help.

While a TTP arrangement can be extremely effective for those companies who owe money to HMRC, if you have multiple creditors, this may not go far enough. In this case you may wish to consider a Company Voluntary Arrangement (CVA). This is essentially a payment plan entered into between you and your creditors and allows your company to restructure its liabilities and make repayment easier. You can continue to operate your business while in a CVA meaning you can trade your way out of difficulty and ensure your company is in a healthy position for the future.

It must be said that a CVA will not be right for every business. Your company needs to be a viable entity going forwards with a good prospect of becoming a profitable business in the future. Added to this, creditors totalling at least 75% of your debt must agree to you entering a CVA before it can be actioned. A CVA can only be entered into under the guidance of a licensed insolvency practitioner who will draw up your initial proposal and will act as supervisor for the length of the arrangement.

Closure options for your recruitment company

Unfortunately it may come to the stage where you have exhausted all possible rescue options for your recruitment company or you have simply had enough and want to move on from the business. If this is the case you need to take the time to ensure you close down the company in the most appropriate way, particularly if it has outstanding debt. For many, the best way of doing this to put the company into liquidation through a Creditors’ Voluntary Liquidation (CVL) under the supervision of an insolvency practitioner.

How can Begbies Traynor help?

Begbies Traynor has years of experience helping recruitment companies navigate all sorts of financial problems. No matter how bad you feel your situation is rest assured there is a solution out there. Contact our team of licensed insolvency practitioners today for expert help and advice. We will take the time to understand your situation, and provide you with all the information you need to make an informed decision as to the future of your recruitment company.

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