Emerging from the credit crunch
No sector was left untouched by the global financial crisis, but it's well-known that the recruitment industry was one of the first to be hit as businesses sought to lower their costs by reducing their payroll through widespread redundancies, which had devastating effects.
Yet the recruitment sector was also one of the first to witness an improvement in its financial fortunes as the UK exited the recession and spending slowly began to rise once again. This was partly caused by businesses quickly recognising the benefits of temporary staff in order to deal with the ever-changing marketplace.
This is clearly evident in Hilton-Baird’s biannual SME Trends Index, which reveals the recruitment sector made huge strides during the second half of 2010. The survey of 717 business owners and financial directors during the first week of November showed that 70% of recruitment businesses recorded an increase in turnover in the preceding six months. This is particularly encouraging upon considering that only 41% of total respondents, across all sectors, could boast the same.
Promising signs of growth in recruitment
The recruitment sector has experienced a number of interesting changes over the past six months, which set it apart from other sectors. For instance, 33% of recruitment businesses recorded a fall in operating costs in the six months leading up to November, compared to just 14% of total respondents.
While 31% of total respondents saw a rise in profitability over the six months, more than half (53%) of recruitment businesses recorded a rise as fewer than one in three (30%) recorded a fall. This success was mirrored as almost three quarters (70%) of recruitment businesses enjoyed a rise in turnover during those six months.
How did the recruitment industry tackle recession?
So what exactly have recruitment businesses being doing to combat the recession? A promising 85% have been busy spreading their net wider and winning new contracts over the past six months, compared to 64% of total respondents. These wins were no doubt linked to the fact that 50% of recruitment businesses entered new markets, while just 33% of total respondents did the same.
Interestingly, a much higher proportion of recruitment businesses (23%) closed or contracted premises in those six months than other businesses (9%). It could be argued that this helped to reduce costs and provide extra capital to invest in staff and drive the high volume of recruitment businesses reporting an increase in their number of employees (54%). This is rather unusual given the current economic climate, with only 28% of total respondents boasting the same.
Such activity could demonstrate that recruitment businesses are planning effectively to be able to maximise the opportunities the climate is bringing. Making tough and timely strategic decisions appears to be paying off.
The financial impact
As we still live in challenging economic times, businesses are urged to constantly review their financing to ensure they have flexible funding in place to deal with economic fluctuations. This maximises the chances of business success during tougher periods.
Another contributing factor to the sector’s growth has been its early acceptance of the benefits of invoice finance, which excels in trading conditions such as these as the funding those utilising these forms of finance can access grows in line with their turnover. With a high percentage (46%) of recruitment businesses turning to invoice finance, it's no coincidence that they have performed well.
By releasing up to 100% of an invoice’s value within 24 hours of its issue, their cash flows can be preserved and working capital is released to cover day-to-day costs and to fund expansion. Facilities can also incorporate debtor protection, which explains why 15% of recruitment businesses secured credit insurance during those six months, compared to just 3% of total respondents. As a result, 92% of recruitment businesses classified less than 10% of their debtor book as bad debt, compared to 85% of total respondents.
Recruitment - well placed to tackle future
It's inevitable that there will be fluctuations in the economy, but recent evidence shows the recruitment industry is better placed than other sectors to capitalise on the economic upswing and safeguard their business from future downturns. This can be attributed to the sector’s underlying awareness of the importance of flexible finance and its understanding of potential bad debt pitfalls. All this stands recruitment businesses in good stead, whatever the future brings.
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