These businesses have high staff costs and irregular income (fees for placing staff) and often substantial payrolls if they supply agency staff on low margins. They can swing from very profitable to loss making very quickly. They also tend to rely on key staff who develop a strong bond with their clients which is a risk if they then leave.
The latter supplying agency staff can eat up cash flow as wages need to be paid often weekly, but customers want to pay monthly and often late. If these businesses get into PAYE arrears (as they are responsible for this deduction) the finances can spiral out of control very quickly.
One large customer bad debt can spell disaster where you have employed agency staff for a customer as your margin maybe only 20% or less.
If you own this type of business and want to carry on the solution maybe a pre-pack Administration to keep the trading name and have as little customer disruption as possible. If the brand name is not so important and perhaps staff are owed arrears of wages, holiday, notice and redundancy a better option maybe liquidation.
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