Most recruitment agencies start out as a lone recruiter, with your ambitions you may want to know how to finance a recruitment agency for growth.
As your journey progresses from recruitment consultant to limited company so do your responsibilities, and one of them is to ensure you have working capital to pay your employees.
Not everyone has enough of their own money to invest and grow the business, but this would be the most efficient and cheapest way to fund your recruitment agency.
Regardless if you are a new start agency or an established recruitment business we look at the best funding solutions for the venture.
How are recruitment agencies funded?
Recruitment agencies are typically funded by a combination of staff wages, client fees, and placement fees. To ensure that staff’s wages are paid on time to the agency’s employees, which include recruiters, account managers, and support staff.
Client fees are charged to companies that use the agency’s services to fill job openings. These fees are generally a percentage of the employee’s first-year salary.
Placement fees are charged to job seekers who use the agency’s services to find employment. These fees are typically a percentage of the employee’s first-year salary, and they are only paid if the job seeker is successfully placed in a position.
In addition to these three main sources of funding, recruitment agencies may also generate revenue through advertising and other miscellaneous sources.
Ways to Raise Finance for a Recruitment Business
There are a number of ways that you can anticipate in to raise finance for your recruitment agency. You maybe looking for a business partner, trying to borrow money, attract an investor, to raise finance for your recruitment business.
However, it is worth noting and thinking carefully about giving away any of your business at this stage. Should you split further down the line from a business partner it can be harder than a divorce as the business will be more established.
Starting a recruitment agency takes a time, and there is a clear need for finance to enable growth.
Sources of Finance a Recruitment Agencies
We take a look at different external sources of finance to help with funding for your recruitment agency using different financial products. The follow types of business finance are available to capitalise recruitment agencies:
Recruitment agency business loans are available to established businesses with a proven track record. There is a variety of lenders in the market today and advancements in technology are making it easier for recruitment agencies to apply for a business loan and receive a decision quickly.
The two types of business loan that are best suited to recruitment agencies are 1. Secured Business Loan, 2. Unsecured Business Loan.
It is worth noting that even if your agency does not have the best business credit history, you might still be eligible for a business loan through alternative lenders.
As there are so many different products offered by a number of different lenders, the eligibility criteria for a business loans may vary.
Lenders may ask the following:
- Company turnover and profit
- Lat six month bank statements
- Last filed accounts
- Loan amount vs. turnover
- The businesses trading history
- The agencies payment history (e.g. CCJs, late payments)
One way agencies can fund their unpaid invoices is by using a produced called Invoice Finance. There are two types of invoice financing available: recruitment invoice factoring and invoice discounting.
Both of these finance products give agencies the freedom to choose how much control they have over their finances. You may have a full credit team within your organisation so invoice discounting would work well for you, or possibly a new start up recruitment agency so would like someone to take care of credit collections on your behalf. Both these products provide the solution you need
There are both pros and cons when it comes to committing to invoice financing. here are some of the advantages of choosing either option are:
Gives your agency quick cash -The overriding advantage of invoice finance is that you’re in control of raising cash quickly for your business. Funds are made available as soon as an invoice is issued to your customer, they can be used to pay wages, taxes or invest in company growth.
Quicker turnaround – The turnaround time of invoice finance is superior to other types of finance such as a business loan. You no longer have to wait 30, 60 or 90 days to get paid, the funds are really available for use.
No risk to assets– Invoice financing works as a unsecured business loan, there is no need to offer up physical assets from your company
Boosts sales– As cash is freed up, your business can enjoy enjoy quicker growth and development in a shorter amount of time.
Angel investors invest in early stage or start-up recruitment companies in exchange for an equity ownership interest. The initial investment can be around £25,000 to £100,000 for a company, but can go higher.
It is important that you find the right investor who has an understanding of the industry but also has an interest in the sector. There will be lots of business plans required, a number of meetings, due diligence, negotiations on terms, and more. Raising working capital via an investor can be a very time-consuming process.
These are the questions an angel investor will ask:
- How much capital are you looking to raise?
- What will be your monthly burn rate?
- Do you have detailed financial projections for the next two years?
- What are the key assumptions underlying your projections?
- What are the key cost components for the product or service?
- What are the likely gross margins?
- When will my capital be returned?
By self funding and using your own cash to support the agencies is the cheapest and most efficient way to get the business off the ground. By using internal sources of fine to self funding it has a number of benefits but your cash pot can only last so long and may throttle growth.
The following as advantages of self funding an agency:
- No Interest: By using your own money and self funding there is no interest unlike other forms of finance.
- Less Commitment: As you are working with your own money you have less of a worry to repay the finance to a lender.
- Immediate Access: There is no discussions and no paperwork to complete in order to access your money.
Overdrafts are widely used by business to help cover the aspect of a working business until a client pays their bills. This type of facility is offered by a bank, but it is not meant to be used as a type of working capital, business that living in their overdraft are busily down rated in their credit rating.
Banks like to see a business only to be in their overdraft for a few days until sufficient cash has landed in the account to ensure it that the overdraft is clear.
The bank will charge a fee for the time that you use those funds and there can be other related charges e.g. for reviews etc. An overdraft is normally repayable “on demand” which means that it can remain outstanding until it is called in by your bank.
Should you be constantly in the overdraft there is a risk that your bank could call in your overdraft, should they are unhappy with the progress of your business.
If you don’t have access to your own finance and require support in-order to obtain growth within your agency, simply complete or online enquiry form.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.