Over 9000 new recruitment companies were registered in the UK last year. Many will be hugely successful and provide an exciting and rewarding career for the founders. Others may not be so prosperous and could fold within a few years. Often the difference in success or failure comes down to careful planning and preparation, preferably before you decide to take the plunge!
The first thing to do if you’re thinking of setting up your own recruitment agency is research, and plenty of it. This will be the biggest career move you will ever make, so you need to go into it with a thorough understanding of the challenges that lie ahead.
Our handy guide to getting started is a useful resource but it will also force you to ask yourself many tough questions. By educating yourself about the negatives and potential risks, you can ensure that you’re prepared and aren’t surprised by things that could go wrong further down the line.
In this section
Is it for you?
The first question you need to ask yourself is, is this right for you? Anybody can start up a recruitment business, but there are certain common denominators amongst those company founders who tend to succeed.
Are you an experienced recruiter? This is usually the minimum time you need to have worked in the recruitment industry for to have a proper grasp of how it works and the regulations, codes of practices and legislation that apply.
Do you have genuine 360-degree ability? As a start-up you will be responsible for Sales, Attracting and sourcing candidates, controlling and sifting through applications and arranging interviews & offers. Make sure you’re prepared to get stuck into every element of the recruitment process.
What are your current billing levels? A top-biller is likely to succeed on their own. If you are struggling to hit targets in an employed environment, going it alone may get your manager off your back, but it my also result in a failed business in such a competitive marketplace.
Have you developed a knowledge in a specialist sector during your time in the industry? If so, when launching your new recruitment business, you should do all you can to maximise on this. Niche expertise sells and is very valuable for a new business as it can give you an instant edge over competitors.
Remember, when you start your own business, you won’t earn a penny until you start billing. Fortunately, recruitment is an industry where providing you make enough of an impact, you can generate revenue pretty quickly. It’s important to be realistic though so without the comfort of having a basic salary, you should make sure that you can comfortably cover your own personal overheads for at least 3 months.
The reality is that starting a new business can be tough and by not having a buffer like this in place you will only be creating additional stress for yourself by having to worry about personal finances.
Most employed recruiters will have restrictive covenants in place with their existing employer. Do not disregard these restrictions.
Restrictive covenants do not stop people starting their own business as the annual start up figure of 9000 shows. However, these restrictions and contractual obligations must be carefully considered as the last thing you want to be facing as a start-up business is a legal stand-off with your ex-employer.
What will your business look like?
Recruitment start-ups come in all shapes and sizes and each type of business has both pros and cons to consider…
It's your business, all the profit is yours and all decisions are unanimous.
It can be lonely at the top. You may struggle to take time off for family commitments, holidays and sickness.
In the right partnerships 1 + 1 = 2.5
One person drives the other and initial activity levels tend to be higher than if you go it alone. It’s positive to have somebody to share the highs and lows and celebrate victories and successes with. Two heads are better than one to drive the business and strategy!
It’s essential to make sure you have the right partner! Do you know them well and trust them 100%? Sometimes decisions may be split, and compromise will be required. This is why in any good partnership you should ideally have a shareholder agreement in place.
You can piggy-back on well-established shared services and a recognised (and hopefully reputable) brand.
Sharing a well-known brand name might not be right for you if you want to avoid being regarded as a generalist. If you have niche expertise, then being part of a franchise can stifle this potentially competitive offering and you would be better off venturing into the recruitment industry as an independent start-up if finances and circumstances allow for this.
There may also be additional costs associated with setting up a franchise or certain rules and regulations to follow which simply don’t fit with the ethos of the recruitment business you want to run.
Investor backing can enable start-ups to launch expensive, ambitious plans straight away which can help to drive initial profits and also help to establish a brand that much sooner.
Most investors are usually pretty business-savvy and their experience will mean they are able to offer invaluable mentoring and advice. They may also be willing to pay a salary as the business grows if they start to see a good return on their investment.
Any investor will be looking for a return on their investment and inevitably, the higher the risk, the higher the return they will be expecting. Investors will require either equity in the business and ongoing dividends paid from profits, or interest paid on loans, and sometimes both. They may also insist on a certain level of control which can prove challenging when there are differences in opinion. Like choosing a business partner, be sure that you choose the right investor – it’s easy to invite them in, but hard to get them out!
Where will you need support?
Be under no illusion that you will need some help! Trying to carry out every support function as well as building a successful start- up business alone would be so time-consuming that you would never get any recruitment done. Also, be mindful of what you are good at – if your strengths lie in recruiting, then that’s where your time is most valuable.
Increased flexibility means that expensive software licences and servers are no longer required to run a big business and that add-ons can be built-in as your business grows. Cloud based software, means essential tools can be purchased per user, month by month, meaning you won’t get stung with annual subscription costs for employees you may only choose to hire on short, fixed-term contracts.
The areas in which you will probably need extra support are:
Costs to consider
In theory, recruitment is a business you can start with minimal up-front costs. All you really need is a phone, a laptop and a spare room to work in. Although you could begin your start-up recruitment business in this way, we certainly wouldn’t recommend it.
Having a comfortable working environment combined with all the essential tools you need to do the job, should be the minimum goal you are working towards when you set up any business. You need to factor in all of these costs when planning your business finances.
Many new business owners will be eager to recruit new staff straight away – if you have a proven track record in your career, no doubt people will be keen to join your exciting new venture. Make sure you budget for new staff – not just their salary, but the cost of their desk – proportion of Office rent, extra PC, extra phone etc, plus additional CRM licences and extra advertising to bring in business. Also consider:
- Beware of false economies – if you offer generous commission and lower basic, will the commission scheme be sustainable in years to come?
- You get what you pay for – sure, you are a start-up and money may be tight, but offering a commission-only job, working from home with minimal training or management us unlikely to produce a superstar!!
- Be patient! – If you can’t afford what you want, don’t be afraid to wait. Work hard and get some revenue into the business – this will give you confidence to offer good deals to attract quality consultants and Good people will also be attracted to an environment where the boss is leading by example!
Whether it’s a home office or a shared, rented space you go for, there are so many choices these days for start-up businesses, particularly within larger cities that you can usually find office space to suit most budgets and requirements.
This will include the additional support already mentioned such as professional services or software to help the business in the areas of accountancy, legal advice, marketing and branding.
Office supplies such as computers, phones, insurance and any licences will also need to be accounted for.
If you are supplying contractors, you will need to finance their wages while you wait for client invoices to be paid. This is an important area to review and prepare for in detail. The cheapest option is likely to be an invoice discounting deal from a bank, but this can leave start-ups with lots of other details to sort out.
Back Office & Finance Systems
Your recruitment business needs to generate revenue quickly, securely and safely, minimising risk and assuring compliance all without the administration taking up all of your time. It can be very time consuming dealing with invoices, paying employees, reporting expenses, and monitoring outgoings.
You may wish to use one of the many pieces of modern accounting software which can now be found online. This software ranges from simple individual tools through to cutting edge, automated real-time technology with integrated dashboards providing a window into your business. Even with the right tools, it can still be time-consuming having to deal with all of these things, so if you can afford some extra support with this then that’s even better.
Legal Contracts and Advice
It’s essential to seek the right advice on drawing up contracts and your legal obligations as a recruitment provider. This is essential not only to protect your business but also to protect the candidates that are hired through your company.
Marketing & Branding
Getting this right is key to attracting the right candidates and the right hiring companies. Marketing a new business is not something you can dabble in from time to time as it needs to remain consistent and there should be a clear marketing strategy in place.
Hiring an agency or a freelancer with a proven track-record for promoting and growing businesses can be the difference between creating and growing a successful brand for your business or failing at the start line.
Website Build & Management
These days, when candidates are searching for jobs or when companies are looking to recruit for a new role, the first place they look is online, so your online presence, primarily your website must be strong.
Website layout, functionality, ease of navigation and user-experience are just a handful of the things you need to bear in mind when creating your company website. That’s without taking into account how to optimise your website for lead generation and to attract the relevant buyer personas to your website. If you can afford to, it’s worth hiring an expert to help with your website.
From posting jobs to sourcing candidates, screening applications and scheduling and prepping candidates for interviews; having the right software in place can dramatically streamline the entire recruitment process.
A strong CRM and supporting apps will also allow you to easily access and manage any CVs, and applications as well as (as your business grows) to quickly check the status of where a job is in your system.
If you need it, buy it! It’s a false economy to avoid spending money on something that you will need to do your job. If you relied on a particular job board in your old job for example, you will probably need to continue using this in your new business. The important thing is to acknowledge these costs and make sure that you shop around for the best options.
Bear in mind that as a start-up you will struggle to match the prices charged by much bigger, more established agencies, so be realistic about your company’s goals and financial targets.
What's the worst that could happen?
As mentioned earlier, this guide encourages would-be business owners to ask themselves challenging questions in order to clearly understand all the potential pros & cons of setting up a recruitment business.
Start-up’s that consider all the potential risks and threats to a new business will be better equipped to deal with these should they arise and as a result the business is more likely to succeed.
Of course, in the world of business you can never account for everything that could go wrong or guarantee success. If you consider all of the points in this guide and feel 90% ready to take the plunge and start your own recruitment company, then the other 10% may have to be a calculated risk or if you prefer – a leap of faith.
If you are in this position, take comfort in the fact that starting a recruitment business is relatively low risk as there is minimal investment required compared to starting a retail or manufacturing business for example. It’s unlikely that you will lose your house and, should the worst happen, the recruitment industry remains very healthy so there are thousands of advertised jobs that you could go back to if you find yourself in that unfortunate position.
As the saying goes, ‘if you don’t try, you’ll never know’, and this could be the best thing you ever do!
Are you ready?
- Do you have the at least 3 years’ experience in the recruitment industry?
- Have you recently demonstrated a high level of success?
- Do you have niche expertise to offer to a specialist market?
- Are you clear about any existing restrictions/contractual obligations that may prevent you from launching our own start-up?
- How much money do you have set aside to cover your personal finances?
- If you’re planning on setting up the business alone, how do you feel about working on your own?
- If you’re considering setting up a business in partnership, how well do you know your partner, and can you trust them?
Once you’re ready to take the leap of faith…
- Take care of business bank account & register for VAT
- Prepare recruitment Terms of Business and contracts
- Privacy policies
- Set up emails
- Review Recruitment CRMs
- Agree CRM deal and migrate any data
- Find a good graphic designer to produce your logo and brand
- Appoint website If required check API’s with CRM so vacancies can be advertised.
- Agree deals with Job Boards for CV Search and advertising
- Agree deals for other essential recruitment software g. Vacancy Management
- If required find suitable office space?
- Buy phones and IT equipment
- Ensure you have a facility to send invoices
- Set up contract finance facility
- Set up on-line timesheets
- Review finance risks and take out bad debt insurance if required
- Arrange credit control to collect cash
- Agree remuneration with accountant
Already set up your business?
At the heart of our comprehensive start-up package sits our fully outsourced Back Office — 3R Finance — a highly automated factoring service to take care of contractor payroll, perm and contract invoicing and credit control.Visit 3R Finance
See for yourself how our start-up services have helped companies to grow.
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Ethos EducationWe like to check in on our recruitment start-up success stories on a regular basis. Here’s what Director, Simon Adams, has to say about Ethos Education Recruitment, the London-based agency he started with fellow Directors Raj Birk and Gemma Yates in March 2020 — with the help of the 3R team. Designed to match teachers with their […]
Get started with 3R today
Start talking to us today. We can produce a detailed proposal, demonstrate our systems and answer any questions you may have. All discussions are confidential, advice is free of charge, and you are under no obligation. We understand that starting your own business is a big decision and we will give you the time and space to make the right decision.Get in touch