Profitability continues to show significant monthly fluctuations, according to BDO Stoy Hayward’s review of the latest data outputs from Recruitment Industry Benchmarking (RIB).

While a significant focus is on the revenue generated each month and how this compared to last month or the prior year, profits generated are appreciably more important to the ongoing sustainability of the business. During the last two years, monthly profits have varied between 0.6% and 8.9% of billings.

Reviewing the trend of the average six-monthly position provides little comfort that there are one-off affects influencing this.

The fluctuations imply that potentially recruiters are not considering their full costs when assessing performance each month. Discretionary bonus payments, usually paid to employees or owners at the end of the year may have some influence on the lower profitability levels seen in January and February.

Christopher Clark, corporate finance director at BDO Stoy Hayward, said: “To control a business and understand the profitability of the operations, recruiters need to ensure that bonuses and commissions are accrued each month to make sure their financial performance is clearly reflected.”

Gross profit margin on temporary labour has continued its downward trend since the latter part of 2007. This reduction, in part caused by the increase in entitlement to holiday pay for temporary workers, will have been influenced overall by the profitability, but it is unlikely that it would have been to the extent seen in the overall net profit.

The reduction in gross profit margin will reflect the ongoing costs, while overall profitability will have to bear the additional one-off set or compliance costs.

With the introduction of the new money laundering regime for recruiters being introduced (although now postponed until the end of May), there are additional burdens on recruiters that will increase compliance costs or reduce productive time. Additionally, the investment required to ensure a recruiter has a compliant system can be considerable. In some instances this has meant the total reorganisation of systems to ensure the necessary compliance areas are being covered.

Clark added: “The security industry went through a similar period with the introduction of licensing in March 2006. After a period of instability, this saw a number of players reduce their presence or exit the market. Recruiters need to ensure they have reviewed procedures, considered whether they are caught by the legislation and act accordingly.”

Changes to the VAT regulations could also have a significant impact on recruiters, mainly affecting those working in the healthcare and financial services sectors, who will have to review their billing processes. The effect this will have on margins and profitability of recruiters is unclear and will, in part, come down to the strength of their negotiating position with clients.

Collecting cash from clients may not be high on the priority list for those in the front office, but this is the true measure of success, Clark said. The average debtors days over the past year has increased from 38.9 to 42.3 days. Funding this increase in working capital can have a significant strain on the financial resources of a recruiter.

Crawfurd Walker, director at RIB, said: “Turnover, profitability and cash are obviously of vital importance for all our members. RIB enables them to benchmark these parameters each month among a wider professional recruitment population providing them with key data to ensure they focus on areas that will add value to their business.”

• Recruitment Industry Benchmarking (RIB) provides its members with monthly up-to-date analysis of their performance on key industry measurements. This enables them to measure, manage and improve their business performance. www.ribindex.com