Written by Rhys Jones Managing Director – Davidson Gray
Rhys sold out of his previous recruitment businesses in 2012 to focus solely on helping recruiters set up and build recruitment businesses. Follow Rhys on LinkedIn or contact him direct here for help with your start-up recruitment business or for coaching to grow an existing one.
So how much does a recruitment start up cost? It’s very much like how long is a piece of string. It has so many variables it’s impossible to give a cost for everyone, plus it is influenced by how much you can afford, want to invest, need to invest to get the business going and how quickly you want your business to go live.
This is probably the most common question I get asked by recruiters wanting to set up their own recruitment business. So how much does a recruitment start up cost? It’s very much like how long is a piece of string. It has so many variables it’s impossible to give a cost for everyone, plus it is influenced by how much you can afford, want to invest, need to invest to get the business going and how quickly you want your business to go live. In addition, how you want to run your business, client and candidate attraction strategy, how much you’ll need to live off, and how long it’ll take you to start getting cash to land. Lastly, how fast do you want the business to grow?
As you’ll see not at all simple, which is why before we start the cash flow you need to know how much you’ll need from day one, because if this figure is way beyond the amount you can raise, you may need to fast forward on where you get your recruitment start up money from.
Firstly if we talk about budget setting, it is a bit of which comes first, the budget or the math as to how much you need. I don’t advocate trying too hard to make the math meet your budget otherwise you can fall into the trap of doing the set up on the cheap and putting yourself at a huge disadvantage from day one. It’s critical the business set up is done to ensure the highest possible chance of success for year one, and if possible reduce too much financial burden on you in the first few months, this can only ramp up the pressure.
I suggest you set all costs with your preferred set up first and see where that takes you. You will of course look at the best deals you can get for each expenditure and think hard on those parts you don’t really need, but don’t cut your budget too tight at this stage, the thing you really can’t afford is to fail!
You also need to decide how much money you need to live off while you have no salary. Work out your monthly outgoings, mortgage, loans, socialising (you can’t live completely like a hermit until the business takes off) and see exactly how much each month you need as a “salary”. This is the first cost to your budget.
Next list all the costs and expenditure for the first six months, (the vast majority of start-ups get their first cash in before six months but your sector may differ, which we’ll come to).
So your total set up costs fall into two categories:-
1. Set up costs to get to day one of trading e.g. website, company registration, database etc.
2. Costs you’ll incur as the months pass, “salary” and trading expense e.g. website search engine optimisation, mobile phone bill, travel costs.
In month one add all the set up costs and the monthly costs for that month. Then for each month after, add only the costs you would incur in each month. I suggest using a spreadsheet, it’s much easier to adjust the figures and use the automated sum facility. For an annual cost like accountancy divide it by twelve and add that figure to each month.
So your set up list might look like this.
- Logo art work and business cards
- PC and Printer
- Office software package e.g. Microsoft office
- Company registration and articles of association
- Partnership agreement, shareholders documents & certificates and other legal papers you’ll need if you’re in a partnership or have shareholder(s). For a business bank account banks now ask for these
- Domain name purchase
- Company insurances, public liability, professional indemnity etc.
- Mobile phone purchase
- Virtual office(s) phone number purchase
- Accounts software
There will be more than this but it’s an example to start with.
And your monthly costs projection might look like this. Again this is a suggested start but I’d suspect more in your completed plan.
- Job boards
- Monthly phone cost, mobile, land line, presence number costs
- IT support
- Website hosting
- Web site search engine optimisation
- Client and candidate entertainment
- Office space (if you don’t want to, or can’t work from home at the start)
- Accountancy annual costs divided by twelve (if you negotiate a fixed first year cost)
If you’re planning to staff up, advertise more as the months go by, and add business growth expense once the money comes in, I’d wait until you add your sales forecast, this will influence the decision on when and how many/ much.
So as you can see the “how much does it cost to set up a recruitment company” question takes work to personalise. Also your business plan will influence some of these costs. You also may want to refer back to my blogs Most Common Recruitment Start-Up Mistakes 1 & 2 to help you avoid some of these in your plan. As an example I think it’s a huge false economy not to have a recruitment database from day one and try and exist from a spreadsheet, however this is often a cost a start up recruiter decides to avoid. Also try wherever possible to build in the fashion of the company you plan to be, it’ll help you get there faster and a lot easier when you get there.
Once you’ve completed the set up and six months costs plan if you add the two together you’ll have your answer to how much you will need to set up your own recruitment business. This figure may scare you or put you off, however don’t let it, I recommend you then go straight onto the cash flow plan in my next blog rather than start working on how to get your recruitment start up capital together. You may, and if you plan well you should, start getting cash in before month six, so this start up cash figure should go down.
Raising funds is also another blog in this series, but don’t think the only route is to raise all the money yourself there are other options. You can borrow money, attract an investor or find a business partner (silent or not).
However if at all possible I would avoid giving away any of your business at this stage, a business partner split further down the line can be harder than a divorce, check out my blog “A business partner is for life choose carefully” which explains why this route needs thoroughly thinking through. It’s for this reason the business start ups I now sponsor as part of Davidson Gray don’t share any equity with me or my business, my initial investment is tied into future revenue so purely based on the success of the business. This way it’s less risk for the business owner, and the relationship has an end of term. Plus if you want to build your business to sell, or get an offer out of the blue you don’t have to give part of that sale to a partner.
I make no apologies if you think this blog in the series seems a little basic. It’s too easy to fall into lots of if’s, but’s and maybe’s in a start up plan. Yes you need to think of worst case scenario’s in a cash plan, but if I went into detail on how much to spend on SEO and what return you could expect, or the value of an initial big advertising budget etc. it could easily start to make the whole exercise a lot more complicated than it needs to be. I will touch on some of these subjects later but for now let’s keep it simple.
My next blog is on how to calculate cash flow, and on which parts of your start-up costs to keep low and which of those will return quick wins if you invest a little more, so keep your eye out for that one. However if you are itching to set your business up now feel free to contact me direct on LinkedIn and if I can help I will.
Written by Rhys Jones Managing Director – Davidson Gray
Interested in working with Rhys to grow your start up?
Rhys not only provides the start-up infrastructure for your new business and all the support services your business will need, he can actually work with you to grow it. Take advantage of as much mentoring and coaching as you would like, plus Rhys considers himself a working partner and will take responsibility for the areas that you’d like him to, perhaps those you have the least passion for e.g. Finance and Digital Marketing. When working together on the business’s growth strategy, much of the effort to deliver it can be delegated to the Davidson Gray team.
Book a chat with Rhys here.