You don’t need us to tell you that recruitment is a tough job to do. When things are going well, it can feel like the best job in the world and the rewards are certainly there to be had. But for some, being just a consultant is not enough – they want to be the person running the ship.
So if you are thinking about jumping ship to swim the treacherous seas towards career nirvana as your own boss, how do you know if you are ready to go it alone from a financial perspective?
We first wrote about this back in 2014 and the core advice hasn’t changed. But the market has, and so have the questions we get asked by people on the verge of starting up. So we’ve revisited our original tips and added a few more things we think every budding agency owner needs to think about before taking the plunge.
Our Top Tips on How to Start a Recruitment Agency:
Keep your costs down from the outset: When starting up, the idea of securing a great new office in a prime location may be at the top of your list of personal priorities, but it’s not necessarily the right move to make at this stage. So, think about your costs and remember that it’s now down to you to pay the office rental, business rates, utility bills and all manner of other ‘hidden’ expenses that come with operating an office. Focus on the real priorities for the business and consider whether you really need that plush-looking office or if you could work from a spare room in your house and save costs instead?
Network rather than advertise: In these early days, the temptation to plaster your new branding all over the place can be too much to resist for many new start-ups. But resist you must. It is all too easy to waste money on lots of advertising – some of which will be effective but most won’t. Instead, tap into your existing network of contacts, maximise your connections on LinkedIn or even organise a launch event for your new business. Talk to as many people as you can about who you are, what you are doing and what makes you stand out from your competition – you really never know where some of these conversations may lead.
Get your pricing right: In your previous job the percentage you charged a client for a successful placement will invariably have been set by the powers that be, but now that decision is yours to make. This is when you need to don your business hat and factor all manner of things, ranging from your own National Insurance Contributions, cost for your time to source that candidate, time taken to interview candidates, costs for advertising the role, as well as the margin you are looking to take. With the CIPD estimating that the average cost of hiring a new employee is £4,667 – time quite literally is money.
Protect your cash flow: Maintaining a healthy cash flow is imperative for any business, whether new or established. It can take several months before you make your first placement and your first invoices are paid, but the bills still need to be paid. Unless you have deep pockets, chances are you will need some sort of financial support to see you through these early days. So ensure that you you have the right back office and financial support partner to help steer you through and keep your business moving forward rather than being held back by slow paying clients.
Keep the books: The sooner you can get to grips with your accounting systems, the better. Having a good system will also mean you can keep track of your business progress from day one and will save you considerable time when it comes to completing your annual tax returns too.
Listen to advice: No one has all the right answers all of the time, so be prepared to listen to the advice of others. Running a business when you haven’t done it before can be a minefield, so budding entrepreneurs should seek the support of companies such as Simplicity who can provide sound advice based on extensive experience of providing financial backing, recruitment support, back office services and business mentoring.
What We’ve Learned Since
Those six tips still hold up. But over the years, talking to hundreds of consultants who’ve made the leap, a few more things keep coming up that are worth addressing honestly.
Be realistic about who will follow you. Most people starting an agency assume their best clients will come with them. Some will. But don’t build your projections around the optimistic version of that conversation. Think about what happens if half of them don’t follow through in the first few months, can you still survive? If the answer is no, you need more runway before you start.
Understand the difference between a temp desk and a perm desk from a cash flow perspective. Running a temporary or contract desk is a fundamentally different financial operation to placing permanent candidates. With perm, you invoice on the start date and chase payment over the following weeks. With temp, you’re paying workers every week and funding that gap yourself until clients pay. That float adds up fast. If you’re planning a temp desk, getting the right finance partner in place from day one isn’t optional – it’s the thing that determines whether you can actually grow or whether you’re constantly fighting to stand still.
Don’t undercut to win business. The temptation is real, especially when you’re new and trying to get that first client over the line. But cutting your fees to win work rarely pays off. The client who picks you because you’re cheaper than their current agency will leave you the moment someone else is cheaper still. The relationships worth having are the ones built on what you actually deliver, not what you charge. Know your market rates, price accordingly, and hold your ground.
Get your contracts sorted before you need them. Terms of business, candidate agreements, worker contracts if you’re running a temp desk. These are not things to cobble together after you’ve won your first client. There are compliance requirements that come with running an employment business in the UK. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 being the main one. Getting caught on the wrong side of them is an expensive lesson. Spend a few hundred pounds getting proper contracts in place from the start.
Know when to get help and get it early. We said it in 2014 and we’ll say it again: no one has all the right answers all of the time. The agency owners who struggle longest are usually the ones who try to do everything themselves for too long. Whether that’s accounting, compliance, payroll or back office admin – every hour you spend on something you’re not good at is an hour you’re not billing or building client relationships. Figure out what those things are and get support sooner rather than later.
We have helped literally hundreds of recruitment agencies who have since grown to become some of the most enterprising and fastest-growing consultancies in the UK. By taking the financial risk out of starting a new recruitment business, Simplicity is a leading partner of choice for those individuals who can demonstrate that they have what it takes to develop a successful recruitment business.
If you are interested in launching your own recruitment consultancy or would like advice on how to finance your growth, call us now.