Now there’s a headline we often see in one form or another and one we should often dismiss because it’s very (very) rarely true, especially if it’s to do with a lottery you haven’t entered or from the Prince of somewhere.
However, if you’re running a recruitment business and you haven’t looked at your current financial arrangements then you might well be losing out. I mean, you look for the best electricity deal and the best mobile phone plan, don’t you? You’d rather pay less for your mortgage or save money on your credit cards, wouldn't you? Why not look at something really expensive like how you fund your contractor payroll?
By way of an example, we were representing a medium sized recruitment company at the tail end of 2014 with their sale, however, we knew the company wasn’t maximising its profits and the owners were flexible with the timescales of their exit plan. So we added almost £50,000 to their annual profit by simply refinancing their invoicing discounting/factoring facility. Now £50,000 per year is fantastic by itself but in the context of the sale value of the business, this was worth an additional £300,000 to the final transaction figure because we achieved a multiple of 6 times their profit for the owners (in very simple terms).
This extra £300,000 was to all intents and purposes ‘free money’ to the exiting owners. All it required was to restructure their existing arrangement and the savings hit the bottom line almost immediately.
Even if they hadn’t have been selling their business, they would have still enjoyed the increased profits and they really hadn’t done much.
A lot of recruitment companies we engage with have still got their original invoice discounting/factoring arrangement in place. It is often the one their own bank suggested when they formed the company or the only one they could get at the time and it has never been reviewed or renegotiated.
This is almost certainly fiscal madness but we understand that it can be very difficult to get a clear picture of what is the best deal for you because invoicing discounting and factoring are very specific to each recruitment company and the directors applying for the facility. It also seems like a huge upheaval to change form something that works for you, even if you suspect it’s expensive. Issues like availability and concentration are just as important as the headline figures like service charge and interest rates, get these wrong and your business could grind to a halt but get them right and business will enjoy the advantage of keeping more of its hard-earned money in its own bank account.
When you get a moment, take a look at your current charges. Sometimes it can be hard to see exactly what you’re paying because it’s usually very cleverly hidden or disguised but with a little effort you can find out and you can take a commercial view on whether it’s worth changing.
Understand what you are currently paying and get some quotes in for alternative funding. You will be surprised how much money you can save. Free money – so to speak.
If you are interested in discussing what AA Chase could do for you, call our Head of M&A, Andrew Errington-Thomas on 07973 832216 for a confidential and no obligation discussion.
