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Are you considering starting your own recruitment business? Over the years we’ve seen recruitment agencies come and go, and identified the common issues that plague many a new recruitment business in its start up phase.

Cash Flow

It is surprisingly common to see start-ups in the recruitment sector overlooking the critical aspect of cash flow management. While placements might look impressive, and invoices provide a sense of achievement, having a steady cash flow is imperative. To determine the amount of capital required to sustain your new venture until you can start withdrawing money, it is vital to create a cash flow projection based on your initial sales forecast.

After successfully establishing your recruitment agency and overcoming the initial sales challenges, it is crucial to continue monitoring your cash flow, especially as you expand your team and operating costs increase. It might seem overwhelming, but managing cash flow can be simplified. A good strategy is to calculate the average running costs based on the previous three months and maintain a reserve of at least one month’s running costs in your bank account – two months if you prefer a more cautious approach. Nevertheless, having this financial cushion is not enough; you also need to prepare for upcoming tax obligations.

Preparing for Tax Obligations

Working for another company means your employer takes care of deducting tax and National Insurance from your wages. Running your own business, however, entails dealing with various tax commitments such as VAT, Personal Tax, Corporation Tax, and National Insurance for your employees, all due at different times of the year. For start-ups, the complexity increases as the first Personal and Corporation Tax bills do not arrive until the second year, and they cover both the previous year’s performance and a projected amount for the upcoming year, effectively doubling your tax bill. Organisation is key to managing this, and it does become more manageable over time.

Additionally, if you are currently employed by a recruitment agency, it’s worth exploring if you could reclaim some of your personal tax for up to four years, potentially amounting to over £4,000.

Avoiding Complacency

Starting a recruitment business might seem straightforward to a seasoned recruiter, but there is more to it than meets the eye. Numerous tasks that were previously handled by others will now fall on your shoulders. Overlooking these responsibilities and “winging it” can eat into valuable billing time, causing stress and potential disruptions when urgent recruitment needs arise.

Beware of Early Success

Experiencing early success can lead to complacency, overconfidence, and a neglect of proper cash flow management, endangering the longevity of your business. Remember, running out of money is a common reason businesses fail. Maintaining financial stability is crucial for your business’s survival.

Managing Your Image

Recruiters typically want to project success, which can sometimes lead to an excessive focus on outward appearances at the expense of generating billings. While having a professional online presence is important, it should not distract from the primary goal of billing. A fancy website and active LinkedIn profile are great, but they must translate to actual business returns.

Choosing the Right Business Partner

Entering into a business partnership can make the startup journey less daunting, but it’s essential to choose the right partner and set clear ground rules from the start. A business partnership can be more challenging to end than a marriage, so it’s crucial to have a solid agreement in place.

Utilising Your Database

Successful recruiters setting up on their own might not have relied heavily on a company database in the past, but utilising a well-organised database from the start can significantly boost profitability and support the growth of your business.

Conclusion

Starting your own business is an exciting venture and can be incredibly rewarding. By being aware of these common pitfalls and preparing accordingly, you can increase your chances of success. Remember, support is available, and seeking advice from experienced professionals can make all the difference. Burton Recruitment is here to assist and welcome ambitious individuals looking to make their mark in the recruitment world.

Our unique proposition means that you can reap all the rewards of running your own business, such as unlimited earning potential, without all of the hassle and common pitfalls that recruitment startups face. We provide full indemnity and liability cover, as well as marketing support and collaborative community of like-minded recruiters.

Let’s Work Together

If you’re an established Recruitment Consultant looking for the next move in your career, we’d love to hear from you.