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FINANCE FACTOR

Davidson Gray was featured in the global recruiter start-up special in June 2016. We were asked to comment on the general business environment for recruitment businesses. Read below our exclusive comment featured.

 

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EXCLUSIVE CONTENT – Rhys Jones, MD Davidson Gray.

I often get asked if our countries economic situation influences whether it’s a good or bad time to start a new recruitment company. My answer is unless we are in a deep recession, or your market is, then fluctuations in the economy have little impact on a recruitment business start-up. Your business is a long-term project, so should be viewed that way. Also leaders of your clients businesses generally base their growth, and in turn their recruitment strategy, on longer-term plans, not month-to-month financial market fluctuations. This is one of the reasons why the recruitment market doesn’t feel immediate reactions to the inevitable ups and downs every economy experiences.

If your start-up is in need of finance, business lending has got a little easier. But business borrowing is not a route I advocate. Business loans are still one of the most expensive ways to borrow money, and the vast majority come with the need for a Personal Guarantee, meaning if the business folds you are still liable for the debt, and the lender has a claim on your assets (usually your house). If you must borrow, then a personal unsecured loan will be cheaper and has no claim on your house. However a default on that does still leave the lender able to pursue you for a court judgment, so it still isn’t a route you would have as a first choice. Nevertheless, it’s not all bad news for recruitment start-ups in the need for cash. The appetite for providing funding from investors or start-up support companies like my own has increased markedly in the last 12 months, so help is out there. Davidson Gray is very unusual in that we don’t take any share in the business in return for funding. However if you do go down this route and look for an investor or business support company who also fund the start-up, you will more than likely have to give away some ownership of your business – but owning a big percentage of something is much better than 100 per cent of nothing!

Access to finance and the current economy are two factors that change as the economic landscape moves, but the biggest threat I see to start-up recruitment companies remains the same, and that’s the business founders themselves. Recruiters by nature are confident self-starters which perversely contributes to the biggest reason recruitment start-ups fail, and that’s the impulsive and bullish nature of recruiters, often jumping into a business start-up feet first, and then running before they can walk. Don’t get me wrong used correctly the typical recruiters traits mean recruiters can make fantastic business builders, but these traits do need to be channeled. A recruitment business isn’t the most sophisticated of business models but it is very easy to get wrong. There is help out there for advice and coaching (which I also provide), but the problem often comes when the business founder feels no need to take advice or even pushes back help from those whose experience is there to tap into. The wisest business people hire or use people with more experience and skills than themselves, unfortunately a lot of business owners realise this too late. In addition to the start-up phase, the biggest threat to any business, cash running out, can hit a business when there hasn’t been sufficient planning for VAT, Corporation Tax and VAT bills. Successful recruiters are used to spending big commission cheques, so it is far too easy to run your recruitment business like this too, only to be caught out when the Inland Revenue come calling. Again this isn’t rocket science so the recruitment business builder just needs to ensure cash management is built firmly into the business plan.

I’ve written a number of blogs on the subjects of cash management, recruitment start-ups and how to build a resilient business plan, so for those thinking of setting up a recruitment business access this help free on http://www.davidsongray.co.uk/blog/

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