What you need to know when starting your new recruitment business

2016 was a phenomenal year for the recruitment sector. Not only did the employment rate reach a record high, the number of aspiring recruitment entrepreneurs opting to jump ship and follow their dream of running their own agency reached a five-year high.

However, there is a difference between thinking about setting up on your own and actually doing it. While you may have excelled as a great biller with your existing employer, running a fully-fledged business is an altogether different proposition.

According to research published in 2016, only 1 in 10 new businesses fail in their first 12 months but fast forward five years and that number increases sharply to 6 in 10 that are forced to close their doors. That’s a frightening statistic yet it is one that can radically be improved.

Indeed, running a new business can be tough and most business owners underestimate the amount of money needed to keep the wheels in motion both in the good and bad times. Poor cash flow is, unsurprisingly, the single biggest reason why a business closes, caused by late payment of invoices or in some cases no payment at all.

If this January sees you resolve to start up your own recruitment business, you need to ensure that you have the financial support to see you through to the summer (and beyond). After all, you more than anyone will be all too aware that it can take anywhere between 60 and 90 days before a client pays you their first invoice.

But that’s assuming you make a successful placement early doors – what if that first placement is for a senior role where the candidate needs to give their current employer three months’ notice?

In this case, you could be looking at three months before you can send your invoice and a further two-to-three months before you receive payment for that placement. Meanwhile, you still have bills to pay every month. So how do you manage your finances at such an early stage?

The post-recession era has seen a dramatic change in the financial services market. Tighter regulation has meant that despite the headlines, the banks aren’t as forthcoming in their support of start up businesses as they once were.

Even if successful in obtaining finance from the banks, it is more often than not a short-term arrangement, which doesn’t help anyone with ambitions to build and grow a long-term sustainable business.

So it is hardly surprising that we have seen a rise in the use of alternative finance providers in recent years, such as Simplicity. In fact, the alternative finance market grew by 95% between 2015-2016, according to the University of Cambridge. And the momentum shows no sign of slowing down.

But not all providers are the same.

Ensuring you partner with a finance provider with a track record in supporting recruitment businesses is crucial. Most providers work with companies across all sectors, which is all well and good.

However, clients often report a lack of understanding among these finance providers or what it means to be a recruitment business.

Indeed, many of them place a limit on the amount of finance you are able to access. Whilst this may not be much of a concern when you are just starting the business, chances are that a few months into the business you will soon see where the opportunities exist for growth.

But because of the restriction imposed on your level of borrowing the pace at which you can grow will be dictated by that finance provider rather than your own ability. Recruitment doesn’t play that way.

The pace of change and the levels of growth enjoyed by many of our clients show us that when recruitment entrepreneurs are given the financial support they need, when they need it and without restrictions, they simply grow at a pace that they want.

Partnering with a specialist provider of finance and outsourced administration solutions is a great alternative step for those wishing to secure a more stable financial backing. Yes, there will be challenges and obstacles ahead of you, but with the right support behind you these can easily be overcome.

If you want to know more about starting and growing your recruitment business, Simplicity has published a free Getting Started Guide that will give some invaluable hints and tips.