The Scale Up Workbook - Lesson 3: Funding and Financial Management

No business can expect to achieve successful growth without carefully considering how it is going to finance it. For businesses in general, this means looking into a wide range of funding options. These can range from traditional loan finance models to more innovative funding opportunities including challenger banks, angel investors or venture capital schemes. Recruitment companies wishing to scale-up can also find themselves faced with more complex financial questions. How, for example, can you scale-up in the temporary market while you wait for clients to pay you? Or how can you make the most of the permanent strand of your business to finance your company’s growth?

As The Scale Up Workbook reveals, a good mix of temporary and permanent contracts is conducive to growing a recruitment business successfully. The recruitment leaders we spoke to felt that permanent contracts offer a company stability, but not necessarily a strong financial foundation from which to expand a business. It is temporary contracts that offer more financial rewards and facilitate organic growth. Having a good blend of temporary and permanent contracts can, therefore, help to ensure your company generates enough revenue to cover your cost base, whilst also bringing in profits that will facilitate your scale-up ambitions.

Irrespective of your specific business model, it is always advisable to ensure your company has enough money on its balance sheet to weather a storm. Although there is no ‘hard and fast’ answer to what is an appropriate amount of money to keep in reserves, business adviser John O’Sullivan recommends keeping enough money aside to cover your cost base for six months. If you are looking to expand the temporary side of your business, you also need to take measures to protect yourself against financial loss. This can involve adopting invoice discounting to allow you to pay your contractors whilst you wait for your clients to pay you. It can also mean taking out bad debt protection to cover you in the event of non-payment from your clients. Undertaking thorough credit checks on all new clients and putting in place tight procedures on credit control can equally help you to minimise risk.

Should you require additional funds to boost your expansion plans, there are lots of options for you to explore. Some recruitment leaders prefer to hire in the financial expertise they need on a permanent or ad hoc basis, whilst others use equity shares or angel investors to secure both the money and the talent they need to scale-up quickly.

To ensure you can finance your business growth we recommend you:
1. Get a good blend of temporary and permanent business.
2. Put sufficient money in reserves to cover your cost bases.
3. Explore invoice discounting to cover the temporary side of your business.
4. Minimise risk through bad debt protection and credit checks on clients.
5. Consider innovative funding options as well as traditional finance models.