Strong financial controls, good cash management and strategic focus will be the key to staffing businesses getting through the current crisis

Sue Dodd, director of Agile Intelligence who compiles Recruiter’s annual HOT 100, believes that while demand for temporary staff in areas such nursing, health and social care will be strong, “there are so many other staffing businesses that are going to see their business grind to a halt, so the companies that can survive will be those that have strong balance sheets and also very strong financial controls”.

Dodd recalls the advice given by Hays’ group finance director Paul Venables during the financial crisis of 2008-09 that it was measures and processes, such as keeping debtor days in good order and other tight financial controls and KPIs that saved money , cash and companies. 

Dodd said that the effects of the coronavirus had the potential to be worse than the 2008-09 financial crisis when there was a 25-30% drop off in revenue across the sector. However, she said precisely how bad things got depended on how the government reacted. “If things go the same way as they have done in Italy, then in terms of recruitment, for several months it is going to be worse than it was in 2009.”

Graham Palfery-Smith, industry veteran, chairman of 6Cats International and adviser to several companies in the sector, said that while there were opportunities for staffing businesses in sectors such as pharma and medical, and particularly in the contract market, “for the rest of the sector it is a question of battening down the hatches wherever possible”. 

Palfery-Smith agreed that staffing businesses needed to focus on cash. “Cash is the lifeblood of the staffing industry and obviously that’s what survival will be about for everybody. It will be about retaining sufficient cashflow. So the first thing that I think every business and I’m pretty sure certainly all the ones that I’ve spoken to will be focusing on is the cash.

“What have we got, how long will it last. What can we trim? What’s unnecessary? What have we committed to and not committed to and those sorts of things. It’s those things good businesses should be looking at anyway, and now more than ever.

“The good news for staffing businesses is they generally have significant reserves in their businesses, whether it’s in their own receivables or on their balance sheet in another form, because a staffing business should be a cash-generative business.”

Carl Swansbury, Partner and Head of Corporate Finance at RG said “Whilst the economic effects of the coronavirus are going to be deeply felt by many in the staffing sector, a focus on cash management and ensuring businesses are focussed on working with clients in the right industry sectors, such as food, technology, healthcare, to name a few, should enable businesses to ride out the storm.”

“Cash management should involve looking to reduce debtor days where possible, agreeing a time to pay arrangement with HMRC, securing a business loan or ID / IF facility, whilst also looking into whether you may be entitled to receive any government grants.”

Dodd said that while it was inevitable that some of the UK’s 24,000 staffing businesses will not survive, “having to stop or substantially reduce their businesses for the next three or four months or possibly even longer”, based on what had happened in previous recession and downturns “recruitment being recruitment” the industry will inevitably regenerate itself and revive. 

In addition to the inevitable start-ups, Dodd said that in previous crises it was often small and medium-sized companies rather than the big companies who led the revival: “The former companies were nimbler and were able to respond faster coming out of the crisis.” In contrast, Dodd said it was often the big companies that tended to do fairly sweeping cuts, so they struggled to get that momentum to come out of it. 

“I’m not saying all small and medium-sized companies will survive. Far from it. But I do think that if they have held on to their staff, probably they will be the first to start recording growth again – just based on what we’ve seen in the past.”

Swansbury commented “We are all living, and doing business in unprecedented times and now is the time to work together, on a global scale to ride out the storm. As a full service advisory firm, RG are very experienced in advising businesses in the staffing sector and are here to help anyone who may need assistance from a funding & refinancing, tax, accounting, CF or strategy perspective.”

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