How does staff turnover impact a business’s cash flow?

By Matt Storey, Partner

One of the largest and most steady drains on a business’s cash flow is employment costs, meaning that efforts to reduce this bill are often undertaken when times are tough.

However, a prevalence of job hopping is being codified among younger workers, which could mean that employees are less tolerant of limitations to their compensation.

Knowing how to manage employment costs as part of cash flow is necessary to avoid the additional strain that recruitment costs can bring.

How does recruitment impact a business’s cash flow?

Cash flow relies on stability and certainty, both of which are lost when an employee leaves the business.

The first element that needs to be managed when someone departs is the upfront costs of bringing in their replacement.

How much this costs a business is open to debate, but it is believed that recruitment could cost a business at least an additional $4,700 (£3,500). There is some indication that the real figure is likely between 1.5 and twice as much as the annual salary and could amount to 213 per cent of the salary for an executive-level position.

Your business’s cash flow will need to be able to absorb these costs, but the loss of productivity that comes with new hires places an additional strain.

Time has to be spent training the new person, reforging client and customer connections, synchronising working styles across team members and addressing any concerns they may have.

All of this is lost should the new hire not make it through probation or if they too decide to leave within a short space of time, opening the door to more challenges for your cash flow.

How can cash flow adapt to the recruitment process?

Some staff turnover is to be expected when running a business, as your employees’ circumstances may change and they could seek different opportunities.

However, a business should be endeavouring to mitigate the risk of employees leaving by attempting to meet their needs as they change.

It is worth noting that Gen Z workers have a greater tendency to switch jobs more frequently, with them having an average tenure of just 1.1 years in roles for the first five years of their career.

This approach seems to work well for them and Gen Z and Millennials have been found to earn 31 per cent more than their peers who remain devoted to a single company.

As it is unlawful to not hire a person based on their age, businesses should be aware of changing mindsets and take measures to address concerns as they arise.

While salary increases could prove difficult in terms of cash flow management, offering alternative forms of compensation like additional benefits, training and upskilling, flexible working conditions and continual engagement with staff can improve retention.

Having a clear understanding of your budget is vital, so getting the support of an accountant can help.

Our team will work with you to provide insightful financial forecasts that allow you to better manage your cash flow.

Understanding potential weaknesses in cash flow empowers you to strengthen your financial position, paving the way for business growth and providing an environment that rewards those who work in it.

To understand and address the connection between your cash flow and employment costs, get in touch with our team.