Welcome to my eBook. As you’re taking the time out to read my guide on how to set up and build your own recruitment business, I don’t think that it’s a huge assumption to make that you are considering becoming your own boss. If that is the case, you are already improving your odds of being a success by taking your new job of business owner seriously and doing some research.
It’s a scary statistic that 4 out of 5 new recruitment businesses don’t make it past 2 years, however simply by reading this eBook you are improving those odds dramatically. Sorry if this sounds a little like I’m suggesting that my book is some sort of work of business genius – I’m not – it’s more to help you understand that being a business owner doesn’t always come naturally – it is a new job that you need to upskill into.
If you’re a talented recruiter, you’ll already be running your own desk as if it’s a business within your current company – making commercial decisions on a daily basis, which job or candidate to work to make money or go out and search for better prospects, constantly using your entrepreneurial skills.
That’s why setting up your own recruitment company can be your natural next step if you don’t want to climb the corporate ladder. As you mature as a recruiter, you need less and less support until one day you may start to wonder what your company actually does to justify taking 70% of your billings and is it your time to take the lion’s share of your billings?
A word of caution – it may not be as simple as you think to go from purely generating cash to managing all the aspects of the set-up, running, and growing of your business. Yes, it might seem obvious, but the reality is that it takes much more than just being a fantastic recruiter to set up a recruitment firm. Whilst recruiters may have a habit of being able to fly by the seat of their pants, and as an experienced recruiter you can get away with it, trying to do this whilst setting up your business is a likely recipe for failure. It’s incredibly important to acknowledge what you don’t know now, rather than jumping in feet first and expecting to wing it.
If you’re serious about setting up, it’s critical to spend a little time planning to help ensure that you not only start making profit soon, but don’t fall flat on your face in the first year.
If you are the type to want to set up on your own, the chances are you have plenty of confidence which can lead to your downfall. If you set up on your own with no mentor to turn to, you are basically starting a new job, Business Owner, with little experience and nobody to show you the ropes or help you when you get stuck.
This eBook is designed to help you learn more about building a recruitment business, giving you the tools to…
- Ensure your business is viable before you start
- Manage your cash through your first year of trading
- Build a business with a rock-solid foundation for growth
Ultimately, this guide will help you navigate through the difficulties of building a business, whilst giving you a lot more time to spend on the fun bit – the buzz of building your business, in your style, whilst making sure you’re taking home a lot more of your billings!
About Rhys Jones
I created this eBook to help answer some of the most common questions I get asked by recruiters looking to build their own business, but not every aspect of creating a recruitment business can be summed up in a few chapters. If you’re looking for more specific advice, or just want to talk over your plans – feel free to get in touch through our website, or my own personal LinkedIn profile.
I started building recruitment businesses over 20 years ago, selling the first two businesses that I built in 2014 to concentrate solely on helping start-ups. This career change wasn’t completely altruistic, but I genuinely do what I do to give something back and to feel the buzz of helping younger versions of myself succeed in growing their businesses. I get a tremendous amount of satisfaction from putting my years of business building experience to good use, helping people with the same raw talent I had when I first ventured into creating a recruitment firm. With my help, over a dozen successful recruitment businesses have been built.
Not a single one has failed, and one was successful enough to attract an offer, which led to an eventual sale to a large recruitment group.
If you’ve made it this far, you’re probably quite interested in becoming your own boss. Whilst it may seem like you have a lot to learn, there is some good news. The psychometric profile of a recruiter is as close as you can possibly get to that of an entrepreneur.
Just think of the challenges you already face. As a talented recruiter, you’re already operating a business-within-a-business, in one of the most competitive markets there is, and you’re doing it by selling the one thing that can actually refuse to be sold.
On top of that, you probably don’t realise just how commercially dependent your job is. Each day you must decide between which candidate and which job on your desk will make you the most money, or whether you need to go and hunt for better prospects. To top things off, you’re already brilliant at the number one skill that makes the world of business go round – knowing how to sell and close deals.
“The ability to influence people in the way recruiters do is an exceptional quality.”
In my opinion, the ability to sell well has become increasingly undervalued. Apologies in advance to car salespeople everywhere, as I’m going to use one of the most clichéd (but useful) examples when it comes to selling. Nobody likes a motor-mouthed car salesperson. The hard-selling, overbearing, quite annoying stereotype is part of a lot of people’s vision of selling, but the ability to influence people in the way recruiters do is an exceptional quality. When you’re running your own company you can use this skill not just to bill, but also to sell to prospective employees, negotiate new deals with suppliers, and even sweet-talk the taxman into helping you with payment plans for your VAT bills (although we try to avoid the latter at all costs… it’s never a fun conversation!)
So, give yourself a pat on the back, you’re already in the top 2-3% of people in the country that have what it takes to become a successful entrepreneur! The question is, how do you get started? I’ll use the words of a wiser man than me to give you the answer.
“A journey of a thousand miles begins with a single step. ”
LAO TZU, CHINESE PHILOSOPHER. 604 BC- 531 BC
It might sound clichéd, but it’s true – even building your own business starts with the small things, so don’t be put off by the mountain you have to climb, and instead focus on your first steps.
There are two starting points that will help you create a rudimentary business plan – creating a sales forecast and working out your costs. It’s important to be realistic about your sales forecast – thinking about how you’ll get your clients and candidates, whilst also deciding on what you’re going to pay yourself and adding this to your list of costs. It will need some more finessing, but these two things are 80% of what you need to get started.
It’s also important to consider what you need to avoid doing, too. Preventable mistakes are all too easy to fall into. To ensure that you don’t make them, my two-part blog series on the ‘Most Common Recruitment Start-up Mistakes’ could be a very helpful read.
Now you’ve identified your first steps and you’ve decided to get serious, it’s a good idea to figure out what important information you will need to know, as well as what issues you might face on the journey. Some of the most common questions are…
- How do I register a recruitment company?
- Do I go Ltd?
- How does VAT work?
- How do I file my accounts?
- What do I do for a database?
- What do I do if my IT and database go down?
- How do I manage cash flow and how much money do I need?
- What impact will my current restrictive covenants have?
These are just some of the issues and questions you’ll need to consider whilst getting started and there will be a lot more. Write them down and ask around; you’ll find that a lot of them can be answered by simply talking to the right people.
All these questions can seem quite daunting, and suddenly it’s understandable why building a business requires much more than just fantastic recruiting skills, but don’t let that put you off. Instead, stay focused on Lao Tzu’s guiding principle, and just keep taking those single steps on your journey.
Now we’ve taken the first steps to creating a business plan, it’s time to look at how you can flesh it out more thoroughly. You’ll be pleased to hear that a strong business plan will only need a few essentials – it really isn’t rocket science. From my experiences of building businesses, a detailed plan doesn’t need to be ‘War & Peace’ to be successful.
Whilst your plan doesn’t need to be sophisticated, it does need to be well thought out and carefully considered. Your business plan will be your foundation for creating solid growth, removing as much risk as possible, and will allow you to concentrate on the exciting bit (making money!) when you go live, so it’s important that it holds up to scrutiny. Putting the effort into building your plan will make the real fun of making money so much easier, with fewer distractions, allowing you to enjoy being your own boss and running your own business. Invest the time into doing this now, and you’ll thank yourself later when you’re making a flying start with your new business.
A quick search on the Internet will give you a number of contradictory ideas on what a business plan should contain, but they can often leave you worse off than when you started your search, confused as to which way is the best way. If this sounds all too familiar, stop your search and continue reading. Through my experience of creating start-ups, I’ve developed a proven way of creating a business plan that focuses specifically on the needs of a recruitment business.
The common school of thought on creating a standard business plan might sound familiar if you’ve researched the subject before – the SWOT method. If you haven’t come across the SWOT method before, it looks a little something like this:
This can be helpful to go through after you’ve looked at your sales and costs forecast but is no by means essential. Our intention is to look at the specifics that are essential to creating a recruitment business plan (plus some other stuff you may not know if this is your first set-up). With that in mind, let’s get stuck into what makes a recruitment business plan tick…
Building Your Business Plan
Do you have the basics of a business ready to go? To test the viability of your business, I advise you to look at your aforementioned cash flow and sales forecasts. If your business idea doesn’t pass this test, you might as well stop here, as your business just can’t get off the ground. With that said, let’s start with the engine of your business – money in.
To write an accurate and realistic cash flow forecast, you will of course need a well thought out sales forecast. There’s a lot more to consider here than you may think. If you simply take what you bill now and replicate this in your forecast, you could hit trouble quickly. There may be routes to market now that won’t be available when you go on your own – PSLs, an expansive database or specific job boards, so you need a thorough understanding of where your current billings come from in order to create a sales forecast that will work with your new business. Figuring this out is a little more involved than you might expect, so to help, I’ve created ways to stress test your understanding of your current billings, specifically by looking at from where candidates and vacancies are sourced
Needless to say, finding good candidates is critical to making placements, so you need to thoroughly consider where you will source them from. To help understand where you are currently successful in doing this, write down your last six or twelve months of billings and note where the candidate for each placement came from.
- Were they headhunted through a call?
- Were they a referral from a previous client/candidate?
- Did you source them from a company database?
- Did you see the candidate on a job board or social media?
This is a real-life study based on you and your current success, and it’s invaluable to understanding what you will be able to replicate when building your own business. There are some sourcing methods you’ll be able to reproduce on your own (such as generating candidates through headhunts and social media) and some that exclusively on resources your current company provides for you (such as candidates you find on a database). When taking these things into consideration, you’ll start to create a more representative sales forecast based on what you will actually be able to achieve on your own.
This exercise will also push you to think of ways you can compensate for any tools you have in the workplace that you’ll no longer have access to when you leave. On top of this, it can also help you build a clearer picture of the costs within your cash flow – will you need to consider paying for a job board membership, or LinkedIn Recruiter? By listing how you source your candidates, all this information will greatly add to your forecasts and help you structure a more reliable business plan.
I’m not going to go in depth on how you can improve your candidate attraction (that’s for another time,) but if you’re currently heavily dependent on company resources to help generate your candidates, alarm bells should start to ring. Instead, you’re going to have to think ahead and plan how you’re going to recruit successfully without these tools. Even better, apply these ideas to your current workflow while you’re still employed, which will enable you to perfect them in time for when you’re ready to build your business, and allow you to add new candidates to your sales forecast with confidence.
At this stage, it is pertinent for me to bring up the potential handicap your current employment contract could have on your business in the form of restrictive covenants. Thanks to these restrictions, client attraction can become more complicated than it would otherwise be. Most restrictive covenants fall under a widely accepted set of clauses that courts see as ‘fair and reasonable’. These covenants usually prevent you from trading with any clients you’ve had ‘material dealings’ with via your current employer over the last twelve months, for six months after you leave the business (any longer would almost always be deemed unreasonable).
Whilst it can seem disappointing to be locked out of working with a group of potentially lucrative businesses, your restrictive covenants might not always hold up to scrutiny. It’s possible other flaws within your contract void these clauses, so it’s important you check over these with a legal professional – preferably one with a commercial background. Law isn’t black and white, and getting good commercial legal advice will be hugely valuable to your business beyond simply checking your restrictive covenants. For the Davidson Gray partner businesses, I use Barrister Greg Walsh, who has provided exceptional legal advice over the years I’ve been helping recruiters start up.
If you’ve had your restrictive covenants checked, and verified that your current clients are off-limits for the first six months, make sure you work this into your business plan, as it can heavily affect your forecasts if not properly planned for. Next, go back six or twelve months again and note how you sourced your clients/vacancies for each placement, just as you did for your candidates.
- Do clients work with you because of your reputation, or because of the reputation of your employer?
- Are the clients on a PSL you won’t have access to?
- Did the vacancy get called in to the business, rather than directly through you?
Once you’ve determined how you source vacancies in your current workplace, you’ll be able to figure out which of these techniques you can replicate on your own and add them onto your sales forecast. Plus, if some of these methods won’t be available or effective when you leave the company, you now have time to plan further business development and marketing initiatives to replace this business. As with your candidate attraction techniques, you can test these new tools in your current business – but don’t practise them too much, otherwise you risk losing any new clients you gain when your restricted covenants kick in.
The Sales Forecast
After you’ve considered the above, you’ll have a thorough understanding of what tools and advantages you currently benefit from in your workplace, helping you write a more detailed and accurate sales forecast. One useful technique that has helped me when creating a business plan is to form two different sales forecasts – one that feels realistically achievable, and one that you feel is the absolute minimum you need to achieve. Creating this second, less optimistic forecast is incredibly helpful in creating a cash flow forecast. You don’t want to get five months into building a business only to then run out of cash. By knowing the bare minimum you’ll achieve, you can see how much of a cash buffer you’ll need to set up your business.
Your more realistic forecast is the one you plan for with the activity you expect to hit and the KPIs you set for yourself. This forecast will motivate you to really commit to your business, as you’ll quickly see that you’ll be earning a lot more on this forecast than you ever were by working for somebody else.
With these tools in mind, begin creating your forecast for month one, and carry it through to month twelve. It might be tempting to continue further, but you can’t realistically predict year two in a start-up. You’re going to learn a lot in your first year of building a business and everything you learn will affect your year two forecasts significantly.
Now your sales forecast is complete, it’s time to move on to your cash flow forecast. To accurately predict what your cash flow will be in year one, we need to take a deep dive into just how much it costs to set up a recruitment business.
Want to know more about when is the best time to start building your recruitment business? Check out Rhys’ podcast…
The Cost of Setting Up
This is by far the most common question I get asked by recruiters looking to set up their own businesses. So, how much does a recruitment start-up cost? Asking this question is like asking “how long is a piece of string?” There are just so many variables that it’s impossible to give a cost for each individual looking to get started on their own. Plus, there are many individual choices that will influence the cost, like how much you can afford, how much you want to invest versus how much you need to invest to get the business going or how much you want to spend on your website and how quickly you want it to go live.
“The only thing you really can’t afford, is to fail.”
We’ve discussed some of the costs that can be involved in investing into candidate and client attraction tools, but in addition to this, you’ll also have to consider other business expenses in your cash flow forecast. For example, how much you need to live off, how long it’s going to take to get cash to enter your business account, how much an accountant costs and lastly, how fast you want your business to grow.
As you can see, working out your business costs is essential to creating a cash flow forecast which ultimately tells you how much cash you need to set up. If this figure is much higher than the amount you can raise, you may need to fast-forward to how and where you can get your start-up money.
Firstly, when talking about budget setting, it is important that you don’t allow yourself to fall into the trap of setting up as cheaply as possible.
Whilst you must be realistic about your budget, setting up on the cheap will put you at a huge disadvantage from day one. It is critical that the business is set up to ensure the highest possible chance of success in its first year.
However, you also want to set a budget that will reduce the financial burden on you in the first few months, as a larger financial burden means much more pressure on yourself to succeed. Striking this balance is imperative to creating a successful budget that sets your business on the right path.
When predicting your costs for the first time, I suggest that you set all costs to what your preferred business set up is and see where this takes you. Of course, you will always hunt for the best deal you can get for each expenditure and filter out the costs you don’t actually need – but don’t cut your budget too thin at this stage – the only thing you really can’t afford is to fail.
One of the more difficult things to work out cost-wise, is how much money you’ll need to live off whilst you have no salary. For this, you’ll need to work out your personal monthly outgoings, including your mortgage, bills, and money for socialising (yes, you can’t live like a hermit while the business takes off!) Once you’ve calculated these costs, work out how much you’ll need from the business as a monthly ‘salary’. This will be the first cost in your budget.
Next, list your expenditure over the first six months. The vast majority of start-ups receive their first client payment before the six-month mark, but this is dependent on sector and is something we’ll look into later.
Your total costs will fall into two categories. The first category is costs involved in getting to day one, which will include things such as website costs, company registration and setting up a database, amongst other things. The second category will be your ongoing monthly costs after day one; things such as your ‘salary’, mobile phone bills, trading expenses and more.
In month one, combine the total costs for getting to day one, with your first month of ongoing costs. Then for each following month, add only the ongoing monthly expenditure. This is most easily done by creating a simple spreadsheet, using basic formulas such as the sum functions. When encountering annual costs (such as your accountancy bills) you can divide these by twelve and integrate them with your monthly expenditure or add them to your plan when they will be due. This is personal choice.
Your two categories of cost lists may look something like this…
Getting to day one…
- Website design and development
- Logo development
- Business card printing
- PC & printer costs
- Office software
- Partnership agreements, shareholder documents, certificates and other legal papers
- Domain name purchasing
- Company insurances, including public liability and professional indemnity
- Mobile phone set-up costs
Ongoing monthly costs…
- Salary Job board fees
- Travel expenditure
- Mobile, landline & broadband
- IT support
- Virtual number costs
- Website hosting
- SEO costs
- Client/candidate entertainment
- Office space
- Accountancy costs
- Database costs
As you can see from these basic lists, “how much does it cost to set up a recruitment company?” can mean different things to different people and takes time to get right for each individual.
It may have already been said, but I cannot stress how important it is to not ‘cheap out’ on these costs during your initial set up. As an example, one of the most common mistakes I see recruiters make when building a business is to simply ignore buying a database, preferring instead to save money by living from a spreadsheet ‘database’. In my opinion this is a huge false economy, and the time you can save with a strong database is well worth the investment you make initially. When it comes to creating your own business, build it in the fashion of the company you plan to become – this will help you get to your goal much faster and make it easier for you when you get there.
Once you’ve completed your twelve-month cost plan, go straight into looking at your cash flow, as opposed to deciding how you’re going to achieve your start-up capital. If your business plan is strong, you will start getting in cash before month six, which will reduce your overall start-up figure.
On Raising Capital…
Raising money is a subject I will touch on but is really something to be left to its own guide due to its complexity. Don’t think that your only option is to raise the money yourself, however there are a number of options you can choose to raise capital, from borrowing money to attracting an investor or business partner.
My advice? Don’t give away part of your business at this stage just to get the cash you need. Your business can last the life of your career so if your investors’ only value is the start-up money, the cash you end up paying back in profit over the life of your business will really sting! Deciding to take on a business partner is a huge decision, on top of the immeasurable number of choices you already have to make whilst getting set up. I’ve written previously about the importance of choosing the right business partner, as splitting up when things get difficult can be messier than having a divorce. Don’t risk choosing the wrong business partner at this fundamental stage in your business plan. I think it worth adding when I first set up I did it with a business partner and it was one of the best business decisions of my life, but not everybody is this fortunate.
So far, this guide has given you the fundamentals on setting up a recruitment business. It may seem a little basic, but the simple actions are the ones to focus on when making a start. It’s important to keep in mind Lao Tzu’s words – that this is just a series of small steps on a bigger journey. This journey of growing your business will include a tremendous amount of learning the many aspects of building a business, but by keeping it simple, you are more likely to succeed in your initial steps.
Once you’ve worked out the sales and costs for your initial twelve months, you can begin to look at how to manage the cash flow within the business, along with which start-up expenses you should keep low, and which will see the greatest return on investment in your first few months.
Managing Cash in Your Recruitment Business
The most dangerous trap recruiters tend to fall into when becoming self-employed for the first time is a failure to correctly manage their cash flow. There’s a popular adage that shouldn’t be forgotten that will help you keep on top of cash flow when you’re setting up:
“Placements are vanity, invoices are sanity, but cash is king!”
This might seem obvious at first, but remember, as someone who has been employed you likely have zero connection to cash collection. You will bill, someone else will invoice, and you get paid your commission. Easy! Tax works in a completely different way, too. As an employee, you’ll be taxed at the source of your income without even having to think about it; any money going into your account will already be taxed, meaning you have no connection to who gets paid and when, either. Finally, you’ll also be completely separated from the bills the company has coming in related to recruitment costs, not to mention the management of who gets paid and when.
When you run your own business, it’s a whole different ball game. Not only do you have to manage cash collection and your business’s bills, but you also have three different types of tax to wrap your head around: VAT, personal tax and corporation tax (plus PAYE if you’re employing others). Looking at all these different obstacles, it’s easy to see why recruiters often struggle to juggle cash generation (billing) with managing that cash.
Budgeting for regular bills is difficult enough, but when you add three different tax bills on top of that, things can seem even more complicated. These tax bills often feel like they’re punishing you for your own success, so it can take an iron will not to spend some of that cash in the business account on those long sought trappings of success, whilst waiting for those big bills to drop. If this sounds a bit too much like a nightmare, good! It’s extremely important to always keep these things in mind, because a business without cash is just the same as a car without fuel. It’s of no use to anyone.
Now we’ve taken the time to go through the burden of managing cash in your new business, let’s discuss how best to manage it – then we can create the cash flow forecast that’s so essential to your successful business plan.
Let’s put the three tax bills aside for one moment and go back to the sales forecast. Once this has been added to your costs forecast, you will see a number you may think is how much you need to set up – wrong. Within this business you will come across the term ‘debtors days’. This is the average number of days it takes for a client to pay; it’s also the number that allows you to add your sales and costs forecasts together to get a cash flow forecast.
As you’re not actually trading yet, you won’t have an accurate debtors days figure. Try to subtly find out how long on average your current clients take to pay their invoices. Don’t just pull up any figures from any recruitment market, because each sector’s figure varies substantially, so it’s important you check for your own sector. Some of the industries I’ve come across have debtors days between one and six months. If you can find the information, try and work out how efficient your current company is at cash collection, too.
It might be that you’ll be much stronger at this when running your own business, reducing your debtors days figure. One business I helped had an average debtors days figure over 150 days (clients that took five months to pay!) because there wasn’t someone in the business who was chasing payments. Once this was fixed, the figure dropped dramatically to just 40 days.
Beyond simply chasing invoices, there are also a number of other techniques that will help improve your cash collection once invoices are overdue. One of the simplest and most effective tools is to discipline yourself (and your staff, when you have them) to strengthen your terms. Add a clause within them that states that any preferential rates negotiated are only applied if the invoices are paid within the payment days set out by your terms.
Most of your clients will not be involved in sorting out payments and are likely to agree to these clauses. Negotiating stronger terms is an exercise in futility if these terms aren’t actually stuck to, however. If a lower rate is negotiated, make sure you follow this up with an email that states something along the lines of…
It goes without saying that you should attach a copy of your terms to this email, too. You should also add the same words in bold onto any invoices you send across. This will not only increase the speed in which invoices are paid without the need for chasing, but it also gives you compensation for late payment and consequences for your client should they not adhere to your terms. Your clients’ accounting teams are going to pay far more attention to you chasing invoices if the threat of a bigger bill is hanging over their heads!
It isn’t all doom and gloom when it comes to cash collection, however. One of the positives as a recruitment start-up is that your clients will often be helpful in getting your invoices paid quickly. This will be for a number of reasons; as your client is disconnected from the payment process, they already see the money as yours, plus they will greatly admire your courage and want to see you succeed. Debt chasing calls won’ t always be daunting – in fact, they can even become an accidental business generation call.
Another number you will need for creating your sales forecast is the average number of days it takes for your placement to be invoiced. For most recruiters, invoices are sent on the day the candidate starts their new role, so the figure will be calculated based on notice periods. This isn’t always the case however, and I have successfully rolled out a system across some of my businesses where an invoice is sent as soon as an offer is accepted. The latter is clearly preferable here, but you do have to carefully judge whether your clients will accept these terms. Your client’s reaction will differ depending on the sector you’re working in, but for most recruiters this will be a tough pill to get a client to swallow, and they will be unlikely to accept.
After working out your debtors days figure and the time it takes for an invoice to be sent, add the two numbers together to come up with an average figure of how long it will take for your sales forecast to turn into cold, hard cash. As an example, let’s imagine it takes an average of 30 days for your candidate to start after accepting an offer, plus 30 days for your invoice to be paid once sent.
This means you’ll be waiting a total of 60 days for any placements you make to turn into money in the bank. With your spreadsheet, simply move your sales forecast row across by two months – this is your ‘cash in’ forecast. If you place a candidate in January, you can expect to see the money in your bank account by March.
Paying Your Bills…
When it comes to your costs, I would advise you to treat them as though they will always be paid on time. This is for two reasons – one, it keeps it simple and in line with your ‘salary’ cost (you won’t want to wait 60 days to get paid!) and secondly, as a new business many suppliers will ask you to pay immediately, or even up-front. This will change as you develop a trading history, but make sure you’re prepared for this when you set up your business.
Finally, combine these figures to get your cash flow forecast. Subtract your monthly costs from your monthly cash-in figure, and you’ll have a mini profit/loss figure for each month as a result. By totalling these figures together month-on-month, you’ll have a rolling cash debt/cash profit figure. This will show you the maximum you can expect you’ll get into the red (debt,) which is exactly how much you will need to allow you to trade until the cash coming in catches up.
Managing Your Taxes…
Adding the three taxes into this equation makes things far more complicated – so we’ll stick to a simplified version of managing your taxes. Personal Income Tax and Corporation Tax will be billed annually, with the timing of Corporation Tax set by you with HMRC (for example, December each year, or April each year depending on your year-end). With both of these, the end figure needs to be calculated by your accountant and they will be the best source to give you advice on how to budget for these figures. They can also tell you when your first tax bills will be due. They are usually in year two of trading, but they will be big when they land and come a lot faster after that! With my partner businesses, I keep them updated on their running totals for both taxes each month, along with when they are due – however I have a stellar accountant that stays on top of this.
Your VAT bill is due every quarter. If you ask your accountant to set up ‘cash accounting’ , you can make sure your VAT bills are calculated based on money that lands in your account rather than based on the invoices you send out. This will positively affect your cash flow, as you’ll only start paying your VAT bill once your invoices are turned into cash. Again, I update all of my partners on their running total for VAT along with when the bill is due, but a rough figure is easy enough to work out by simply using 16.67% of any cash that has landed into your account as a guide. This figure will obviously drop as any VAT-able invoices are deducted from the total but overestimating the figure will keep you from having any nasty surprises.
Recruitment Start-Up Checklist
Having someone who has ‘been there, done that’ to help can be absolutely invaluable, not just with the initial business set-up but also for the ongoing challenges the business will throw at you. However, finding someone you can trust who has the experience isn’t easy, so to help those who don’t have the luxury of having someone to work with as a coach or mentor, I’ve put this checklist together.
I stress now that this isn’t 100% comprehensive – it’s for recruitment start-ups in general, and there will be some sectors or situations that warrant things that aren’t on this list. It’s also impossible for me to know the priorities of the business start-up without knowing what the client and candidate attraction strategy needs to be to complement the recruiter’s style and sector.
It also helps massively to know what sort of business you want to build. Do you want a small boutique agency, or something that can grow to multi-office? Is your sector usually very phone sales based, does it rely on job boards, or LinkedIn? Do you want it to develop a very strong brand and have a first-class digital marketing strategy to make it an easier place to make money for new staff whilst removing reliance on the business founders? There are many things to consider across different types of recruitment businesses, but there are also many things each one has in common. Here’s what I feel is a good checklist that will help all start-up recruitment businesses:
Sole trader, partnership or Ltd company?
Although the choice on this may only have a small impact on the growth and set up of the business, it’s a decision you have to make, otherwise you can’t form the business on a legitimate footing. Businesses have to be registered for a number of reasons, primarily for tax and VAT declaration purposes. The decision on which of these options you use for your business usually comes down to two questions; which is the most tax efficient of these four for the business’s growth, and do the founders need to be protected against loss if the worst should happen and it goes bump?
I am loathed to give too much detail – the tax positions for all of these do seem to vary after every budget, however I tend to advocate setting up a limited company. There are tax reasons but the main one is, if the worst does happen and the company does go bump, the shareholders can walk away with the least personal liability for any of the company’s outstanding debt.
Chose a name and form your business
Forming the business, once you’ve chosen your name, isn’t that hard – an accountant can do it for you or if you research on Google you should be able to work it out yourself. The naming however may take more thought. For some the name is pretty emotive but from a business aspect the name is usually of limited importance. However, anything too obviously ‘salesy’ will make it harder to get past the gatekeeper to your decision makers. Your decision makers usually don’t care what your business is called; it’s all about you and how good your service is, but you won’t go far wrong if you choose one that matches your sector. For example, if you are in the legal or accountancy sectors, a hyphenated name, or one formed from two surnames, like Davidson Gray, would work well. However, if you are in marketing, something a bit more abstract as the theme would work better.
Try to pick something that is easy to spell and doesn’t have different ways of spelling, as this could hamper you being found in Google, from word of mouth or emails going missing from misspellings of the business name in your email address. However, avoid getting carried away on choosing the name until you check if the company name is available – you can’t call yourself the same name as one already registered. Plus, don’t forget to check if the web domain is available before making any decision.
Create and shareholder agreements
If your business has an investor(s) or there is more than one shareholder, I strongly advise that you get a shareholders’ agreement drawn up. This contains the rules that govern the business, share of profits, how the income from a business sale would be split, who has what power for what decisions, and the list goes on. I don’t want to over-complicate this, but trying to put together a shareholders’ agreement after you hit a disagreement is not dissimilar to getting house insurance once you’ve been burgled, so try and at least get a basic one when you set up.
Plan your accounts
Unfortunately, all businesses have to pay tax, so you will need someone to do your accounts. How will you generate your invoices, file the business and personal tax returns, will you charge VAT and if so, how will that be handled? You can do some of this yourself but to choose how much you do or don’t do; you first need to find an accountant. See if you can find a recommended accountant. The quality and costs vary massively, so do look for one you have been told is good.
Are you going to charge VAT?
Depending on your turnover, you don’t have to charge VAT, but if you don’t it will tell your clients you’re a very small company. You do have to pay back the VAT you charge to the Inland Revenue, but you can either claim back the VAT you’ve paid on purchases for the business, or use the government’s flat rate scheme which means you pay back your VAT at a lower rate but don’t claim VAT back on business purchases.
I’d recommend that you ask your accountant to put you on cash accounting, as previously mentioned. This means that you only pay the VAT on money once it’s landed, not on what has been invoiced. It helps your cash flow, plus it means that you’re not paying VAT on an invoice that doesn’t get paid or needs crediting.
Get some! Again, using the insurance analogy, you only want it when you need it and IT downtime can cost you a lot of money in lost revenue.
IT support can set up and maintain your emails and data back up, so unless you are pretty hot with technology, this will tick two boxes
It wouldn’t be appropriate for me to recommend which insurances you should have or need; however, you should check. Of the more common business insurances there are Employers Liability, Public Liability, and Professional Indemnity & Contents.
I would certainly have this on your list of priorities. However how much you spend on your site depends on what you are using it for. My thoughts on websites would take up a blog in itself, however, to help you decide what sort of site you need and what your budget should be, ask yourself this question. Is the site geared towards those people you’re in contact with already, so really a ‘brochure site’ or is it for new contacts to find you through search engines such as Google? If it’s the former then it’s fairly simple, if it’s the latter and being found on Google is a priority for you, it’ll take more planning.
If you do want to be found through search engines, this will mean investing in optimising your website, but before you do that, try and find out how feasible it is to get a good ranking for the search phrases you want to be found under. If, for example, you wanted to be found under anything followed by ‘job’ you’ll be up against the job boards with budgets of millions, so that may be a very big ask. Having said that, I have achieved page one of Google for more than one of my businesses for the term ‘jobs’ , so it can be done, but I won’t lie and say it was easy! All of the businesses I’ve set up through Davidson Gray rank top of Google for at least one of their chosen search phrases, and most for the term ‘recruitment’ for their sector, however it took time, money and expertise, so think hard before you set off on what could be an expensive fool’s errand.
Deciding how you want your business to be seen through your logo and your website is something else to add to your list. However, going back to whether you want to be found through SEO, if your website is only for people who use you already then the branding isn’t as much of a big deal as it would be if their first contact with you is finding you on Google.
A quick and easy tip for specialist market recruiters – look at your biggest clients’ branding and lean toward that. People like to buy from people they feel are like themselves, so if your branding is like your clients’, they’re more likely to see you as someone to do business with.
Terms of business
Having good terms of business is hugely underrated. They can get you paid quicker, reduce client refunds, minimise lost fees, increase fee sizes with smart clauses, and reduce bad debt – it’s not just about your rate and your rebate scheme. Invest time and money if needed in getting your terms written well, it’s a job you won’t have to review for a long time if done properly. Next, put your terms into a PDF file and DON’T amend them every time you negotiate terms with a client. Altering terms can lead to clauses becoming invalid, your terms having holes in and previous saved changes spreading. Instead, add your negotiated change to the narrative in your terms confirmation email.
Do you really need them? I ask because…
a) They usually demand a minimum annual spend into the thousands. You can pay per credit – but they will charge you a lot per advert.
b) If you examine your last 12 months of placements, you may need them less than you think.
C) If you used the time you have spent writing job adverts, going through responses and CV databases and ringing average quality responses, you may get a better return on your time investing in making direct approaches and being smart on LinkedIn.
Depending on your market, you may not use LinkedIn, you may use it a little, you may use it a lot, or maybe can’t bill without it! Whichever category you fall into should then influence which type of licence you get. The names, costs and benefits of the various licences offered change all the time, so when you are preparing to go live with your new business, look into which package suits you best. There are also a number of good (and some less good) software ‘plug ins’ that will complement your LinkedIn searching. I’d recommend researching their functionality, because it may save you the expense of a costly LinkedIn licence, as such plug ins are usually fairly low cost.
Get a mentor or Non-Exec
When you set out to run a business, it’ll help you to accept from day one that you will make mistakes and things will go wrong. It happens to everyone. However, having a good mentor will help reduce these situations as they’ll help you pre-empt and avoid both, give you answers to dig you out of your mistakes, make smarter decisions to save and make money, and importantly give you someone to bounce your ideas off.
Having a good mentor can also reduce your stress levels. This can be simply having someone to give you reassurance that you’re making the right decision, removing that feeling of being on your own and knowing you have someone to turn to when you need it.
Furthermore, having a mentor or Non-Exec will increase how quickly you improve in the very challenging role of Owner-Manager.
Having a mentor is the most undervalued of all the inclusions on this list. If you haven’t run a business before, you are in effect taking on a completely new job that your livelihood depends on, with nobody to show you what to do. The quality of your mentor will influence strongly your chance of success or failure, how much or whether you enjoy running your own business, how much profit you make, how fast your business grows, how resilient your business is and what your business becomes. If you think that you will ultimately want to have a business you can semi-exit or sell, a good mentor or Recruitment Non-Exec is a must.
A big thank you for reading this guide on building and managing your own recruitment start-up. If you got this far through the eBook, I can only hope that you found this guide informative and helpful. If you want further guidance on how to progress, please do get in touch with me!
I am always on the look-out for recruiters who have the same passion that I have for building a first class recruitment business, so if you feel this could be you, contact me via LinkedIn or directly by email to arrange a chat.