How to start your own recruitment business
Is it your time to start a recruitment agency? It can be hugely rewarding but as with any venture it has risks as well. Our guide below will help you navigate your way to success
Let’s face it, we may like the status of being the company director and our own boss but what it all boils down to is money. So how much can you realistically start a recruitment company with and how much can you expect to make?
A new business can be started on a relatively small budget, if you have a computer with an internet connection, you can do it fairly quickly and at a low cost.
In this day and age you are likely to require a website that has the ability to handle jobs as well as applications. Historically these capabilities were very expensive and you can still pay anywhere from around £4k up to £20k depending on how much you want to spend but several providers now give great features and functionality in a recruitment website for as little as £99 p/m.
CV databases are developed by job boards that allow people to register their CV. As a recruiter you can then pay to access those CVs and prices typically start from £200p/m. Often Job boards will factor advertising into the price plans which allow you to post your vacancies and expose them to a large audience.
Tip: always try to negotiate as job boards like to cut a deal and see if you can get a free trial too.
Invest in a business phone line and fast internet connection and factor in costs of around £40 p/m for this.
Be sure to factor in any additional subscriptions you may want like a LinkedIn license (£65 p/m if purchased annually) or serviced office space (£350 p/m in London, £200 p/m elsewhere). However you may want to start up from home in which case your registered address can be your accountant's address which keeps costs down.
If you use an invoice factoring business, they take a small fee (4% of invoice value is not unusual) which is often worth it as they will take care of all your invoicing and credit control leaving you free to win new business.
If you keep your costs down it is very possible to have margins up around 65%. Anyone making a success in recruiting is hard working and ambitious so set yourself a realistic target for turnover and do the sums from there. E.g. Billing £130k x 65% = £85k profit. Not bad at all!
Your working day
If you are already working in recruitment then you will know what is required to bring in the money, however be aware that you will have other pulls on your time when running your own recruitment company.
Longer term, you may have to manage staff, money, and other third parties and long hours are also inevitable as you often can’t have a conversation with candidates before 5:30pm when they finish work.
Rules and regulations
The main piece of legislation governing the recruitment industry is the Employment Agencies Act 1973. This exists “to secure the proper conduct of employment agencies and employment businesses and to protect the interests of persons availing themselves of the services of such agencies and businesses”.
The regulations cover things like What you can and can’t charge for, what information you can disclose to the client and worker and How you advertise the job (You must make it clear you’re an agency). As long as you operate ethically you are unlikely to infringe this act and operating within the REC Code of Practice will keep you on the right side of the law. Assuming you have worked in recruitment before you will have a good understanding of what is right and wrong.
Other regulations governing the industry include the Employment Businesses Regulations 2003.
Before you start
Don’t start your new business without a plan – Have at least a first year target covering revenue, costs and cash-flow. Make sure you have enough start-up funds – Often the first 6 months are crucial and the most difficult.
Understand that your time is valuable and don’t waste it on things like recruitment website design. Many recruitment websites can take weeks to be built and every stage of the consultation, design and development is likely to distract you away from making money so try to pick solutions that do not eat into your valuable time as this will be critical in the first year.
Research your market, your best bet is to stick to what you know and are comfortable with, working with existing clients is a lot easier than developing new ones and decide on whether you are going to be a contract or permanent recruitment agency. Contract recruitment will give long term profits and turnover but requires finance. Permanent recruitment brings short term cash-flow benefits but you are only as good as your last permanent placement.
Aim to have contacts to deal with from day one but do not rely too heavily on clients from your previous jobs as some may stay loyal to the previous agency. Restrictive covenants in your current employment contract may also prevent you from ‘poaching’ clients in this nature as well.
Ensure that you register the company correctly with Companies House and HMRC and get to know your bank manager as they can often give advice and competitive deals for banking services.
Legal contracts will ensure you are paid correctly so are worth getting in place before you close your first deal. To begin with it may be simplest to copy someone else’s verbatim and change the names to your own. Also invest in Employer's Liability and Public Liability Insurance which will protect you in the event of any legal action.
Many have made the leap and never looked back. If you have the drive and passion to be a successful agency recruiter, you are already equipped with the most essential skills. Adding commercial intelligence and a healthy book of contacts into the mix ticks all the boxes. What are you waiting for, get out there and make something happen!