Choosing the right financial support from the start. The recruitment sector is thriving at the moment. With hundreds of new recruitment agencies opening their doors for business in the UK each week and job vacancies reaching a 20 year high. The recruitment sector is enjoying a period of growth.
Despite a large number of recruitment start-ups, not all recruitment businesses will be successful. A good recruiter you may be, but starting a recruitment business is a whole different ball game.
Around 20% of businesses fail in their first year of operation, according to estimates. Furthermore, after the first three years of business, it’s a higher percentage of failure, reaching 60%. A big reason for these failures is that new business owners underestimate the money needed when starting up. As a result, business owners will start struggling to invest in their business without sufficient funding and maybe even struggle to pay their workers, potentially leading the business into liquidation.
A good tip to help you get by when first starting is to assume that your company might not receive any money for up to half a year. This may sound extreme, but often it may take over a month to make your first placement. Then they’ll often have to serve a notice period – up to three months in senior positions. So before you know it, you haven’t sent your invoice until month five, and payment may not hit your account until month six. And that’s not even addressing the payment of temp workers. It all adds up.
How do you manage your finances in the early days?
Bank loans are an option for start-ups to get on their feet in the first year. However, banks are cautious about whom they loan to. Particularly if you have little or no credit history to back yourself and prove your new business venture is not a high risk to the lender. This is not always the case; you may get accepted for a loan, but normally in these circumstances, it may be a ‘short-term’ loan. That is a temporary solution you will eventually need to sort out further down the line.
For many recruiters, factoring has long been the preferred method of obtaining funding. However, while there are certain advantages to factoring, there are several significant disadvantages that recruiters should be aware of.
Factoring by default imposes concentration limits – the maximum amount the provider will cover for a single client. So, if you plan to work with a small number of large clients, these limits could restrict you from gaining access to your profits.
Also, the longer it takes your client to pay, the more expensive your factoring facility becomes. With interest, continually accrued overtime for late payments. Not only that, but this will also reduce the total amount that you can borrow. So not only will you incur additional costs, both your profit and access to available funds will be significantly reduced too.
One great solution is to partner with a high-quality recruitment finance and back-office provider to put your business in a secure financial position.
Compared to other options, alternative finance providers are accommodating to the ever-changing needs of recruitment businesses. This can be critical, especially if you work with clients who need to scale up and down operationally within short-time frames.
Specialist recruitment funders can provide you with access to the finance you need when you need it, without the limitations and caps associated with factoring. So, even if your clients take 60 days or more to pay, the money can be in your account within a day or two of raising an invoice, thereby guaranteeing access to your profits margins and improving cash flow.
There are also alternative finance providers who provide comprehensive back-office support as part of their overall recruitment solution. This includes paying your workers, invoicing clients, and assuming responsibility for chasing debt while focusing your time developing your business.
The important part about using a specialist financier is that they understand the recruitment market. Also, they can be flexible to support your business from start-up to growth.
With the right support, you can take on the challenge of setting up a new recruitment agency and thrive within the recruitment sector. At Simplicity, we want to help any recruitment agency do just this, so we have a FREE Getting Started Guide available on our website.
Simplicity has provided market-leading recruitment finance and complete back-office solutions to start-up and growing recruitment businesses for over 17 years. We only work in the recruitment industry, which means we understand the challenges you face and overcome them. Whether you are looking for a temporary or permanent solution, we have the funding, team, and technology to get you started and support the growth of your business.
Contact one of our recruitment specialists today to learn more about our recruitment start-up solutions. Or you can download our Getting Started guide to find everything you need to know about starting your own recruitment business.
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