Insights | Aug 28, 2019

Margins are Up, how come Net Income is Down?

By Tom Kosnik

 

Good News! According to research from the Staffing Industry Analysis margins in the staffing industry have ticked up for the fourth consecutive year. Guess what else has ticket up? Internal employee salaries, healthcare and marketing just to name a few. A deeper dive into the P&L of an average staffing company and what we discover is not shocking. Namely, revenue and gross margins are up, but operating expenses are outpacing these gains. The net result is that the net income as a percentage of revenue is down.

Managing a staffing company via a financial plan is a skill that many small to midsize staffing firms struggle with. In today’s environment, a rising tide does not lift all boats equally. Business owners and managers are prudent to know exactly what certain investments are driving gains to the bottom line. Another way to think about this is that the business owner has a limited amount of time and financial resources to allocate to certain key initiatives or projects that will ensure above average net income results. Knowing where to invest is critical.

One of the objectives of a financial plan is to be measuring the results that certain investments are having on the business. If one makes an investment into a certain marketing program, for example, then one should be able to see gross profit per internal employee increase. If this result does not happen with the investment, then maybe the investment was a poor investment. Solid financial planning tracks these specific investments, more importantly tracks the impact these investments are having on employee performance and net income. Having and using and managing via a valid and reliable financial plan can make all the difference in the world to managing above average returns.

At Visus Group, we take great pride in helping our clients; please contact us today.

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