How to finance your new recruitment business
According to the figures released by Companies House, over 6,000 recruitment businesses were registered last year. So even though it is common knowledge that the recruitment industry is enjoying a period of growth, this is proof that the industry is booming.
However, just because confidence is strong doesn’t mean all recruiters should leap to the chance by leaving the relative safety of working for someone else and going it alone. Being a great recruiter is one thing, but starting and running a successful recruitment business is a different matter.
How your recruitment business will perform at the beginning
Recent reports tell us that 1 in 5 (20%) of all new businesses in the UK fail within the first year, including recruitment businesses. Furthermore, within three years, that figure rises to 60%. Why? Because the amount of money a start-up business requires is underestimated. Without sufficient funding, recruitment owners will quickly struggle to invest and grow their business and pay their workers and themselves. At best, business growth would be heavily restricted, and at worst, their business would go bust.
A good method when starting is to assume your business might not receive money for up to 6 months. This may sound over the top; however, placing your first candidate often takes over a month. Furthermore, they will often have to serve a notice period of up to three months in senior positions. And, before you know it, you’ve left it five months to send your invoice, and payment may not arrive until month six. This all adds up.
So, in the early stages, what are your financial options?
Bank loans are believed to be the primary income source for many recruitment business owners. Still, in recent times, many banks will be cautious when providing funds to a start-up, especially if they have no backup records. Even if you can acquire one, it is a short-term loan and, unfortunately, is only a temporary solution.
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 accruing overtime for late payments. Not only that, but this will also reduce the total amount you can borrow. Not only will you incur additional costs, both your profit and access to available funds will be significantly reduced too.
Recruitment Specific Finance
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. Therefore, guaranteeing access to your profit 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.
Simplicity is here to help
It is a challenging time when setting up a new recruitment business. However, with the support of the right provider, your challenges significantly decrease. Simplicity can help you start and grow a recruitment business with the Getting Started Guide. Download now to access valuable hints and tips.
Simplicity has provided market-leading financial solutions to thousands of recruitment businesses to help them get started and grow. We only work in the recruitment industry, which means we understand and overcome your challenges. So whether you are looking for a temporary or permanent solution, we have the funding, team, and technology to support the growth of your business.
Get in touch today on 01594 888518 to find out more about our services, or download a copy of our brochure HERE.