Recruiters’ revenues have been falling since last summer, which is perhaps unsurprising considering the current economic climate.
However, the difficult judgement call now is: how far is turnover likely to drop?

According to BDO Stoy Hayward’s review of the latest data outputs from Recruitment Industry Benchmarking (RIB), members are not having to take as much drastic action as some of their listed counterparts.

However, recruiters in general have expressed growing concerns over the ongoing funding and viability of their business model. According to the data, the average debtor days over the past two years have been 41.5 days. Given that the overall revenue of the industry is
estimated to be £27bn, this implies that over £3bn is tied up in working capital, which is being funded by recruiters.

Funding has typically come from banks as well as retained profits, with little capital being injected into businesses by their owners. Now that banks are being more cautious over their lending approach and with new funding not being readily available, recruiters are becoming more concerned about how to obtain funds. They will have to look to owners for an injection of additional capital or stretch payments where possible with suppliers or government organisations.

The debtor days of October and November were significantly below the average in 2008 at 39 and 38 days respectively, and this has
freed up working capital of between £115m and £188m. The reduction in revenues being experienced since the summer of 2008 will also reduce working capital tied up, so while profits are likely to drop, the business would still be cash generative in the short term.

This peculiarity will not continue indefinitely. The more astute recruiter, which is able to manage costs at the same time as its debtors, will maintain its liquidity and ultimately survive to fight another day.

It is also not surprising then, that after a period of stability for three months between August and October 2008, the number of employees has started to reduce.

Given the significant growth in sales and employees in the past two years, the reduction in employee numbers has not been as dramatic as might have been expected. Trading statements in December by Hays and Michael Page announced headcount reductions of 20% and 10% respectively compared to last year. With these businesses being in the public eye and having to balance the pressures that external
investors place on them, their action may be a lot harsher than smaller, privately owned businesses.

Christopher Clark, Corporate finance partner at BDO Stoy Hayward, told Recruiter: “It is very difficult when you have been building a business to suddenly have to change mode and look at the cost base. This is usually a euphemism for reducing staff numbers and in a smaller organisation this can mean letting people go who have helped the business grow. Private companies are also not under the same
pressures as their public counterparts to make a return to stakeholders through dividend payments. Their actions can be more measured and planning for long-term capital appreciation.”

In the year to March 2003, industry turnover fell by £1.2bn, a fall of some 5% at that time. Given the current economic climate, falls
greater than this would not be unexpected. However, a lot has happened in the industry in the last five years to integrate temporary work as an integral part of a corporate’s employment strategy. Will this be enough to provide a floor to the revenue?

“Recruiters will face a tough first six months, with sales difficult to find and an ever increasing pool of available candidates. Recruiters
who can offer their clients valueadded services on selection or prove they can access candidates in markets still experiencing skills shortages are likely to perform better,” said Clark.