In 2021 there was 4,000 new recruitment businesses that opened their doors for the first time in the UK, according to figures recently released by Companies House.
This would seem to prove, as if any proof was needed, that the recruitment sector is not only enjoying a period of growth, but also relatively booming, many of these recruitment businesses have looked at different ways to fund the venture.
But while confidence may be high, that doesn’t mean that all would-be recruitment entrepreneurs should take the leap from the relative safety of working for someone else to going it alone.
You may be a great recruiter but getting started as a great recruitment business owner is an entirely different matter.
The Times reported that that 1 in 3 (40%) of all businesses – recruitment included – fail in their first year, and half fail in their second year. The finding shown that this was due to business owners underestimate the amount of money any start-up requires.
Without adequate funding recruitment owners can very quickly find themselves struggling to invest in their business, pay their workers or even themselves. At best growth will be heavily restricted, at worst the business may even go into insolvency.
When you start out you need to assume that your company might not receive any money for up to six months. This sounds over the top, but often it may take over a month to make your first placement and then they’ll often have to serve a notice period – up to three months in senior positions.
Before you know it, you are in month 5 and only just getting ready to send your invoice to your customer, so payment may not hit your account until month six.
Finding the funds to start your own recruitment business
Starting a new recruitment business is an exciting proposition, but it also requires a significant amount of planning and financing. Before you can open your doors, you’ll need to figure out how to fund your new venture.
There are a few different options to consider, each with its own advantages and disadvantages. One option is to take out a loan from a bank or other financial institution. This can provide the upfront capital you need to get your business off the ground, but it will also require you to make regular loan payments, which can strain your finances.
Another option is to seek investment from venture capitalists or angel investors. This can be a great way to get funding without incurring debt, but it also comes with some risks, as you’ll be giving up a share of equity in your company. Whichever route you choose, be sure to do your homework and create a solid plan for how you’ll use the funding to grow your business.
With careful planning and execution, you can turn your startup dreams into reality. From day one it’s important to be clear that your financial choice will have a direct impact on how you manage your business. This brings home the importance of how a specialist recruitment provider can assist you.
To Factor or not to Factor
New start recruitment owners often choose factoring to fund their recruitment businesses. Factoring companies will purchase your businesses unpaid invoices and advance most of the value of those invoices. The amount varies between company but may be up to 95%.
However, if you are a temporary recruiter, you need to be sure that the level of advance you receive is going to be enough to cover the payment of your weekly temp/contractor wages. Due to the nature of a recruitment business, they need to be able to guarantee payment of its workers every week and needs the cash flow to do so.
Regardless should you have 1 or 100 temps/contractors they still need to be paid, our flexible funding solution pays your workers, this is guaranteed every week.
Invoice discounting, is a type of invoice finance, the difference between discounting and factoring is that the factor will chase the outstanding invoices with your customer. As it is totally confidential your client will not know that you are using a discounter to fund your new business.
Crowdfunding is most often used by new businesses or growing businesses as a way of accessing alternative funds. It is an innovative way of sourcing funding for new projects, businesses or ideas.
People invest and in return they get a great return on their money for the risk, some crowfunders require a shareholding within the company as security.
Do you have enough personally to self-fund the business? Taking a good look at your personal finances and reviewing what type of hit you will suffer by self-funding your new business due the costs.
You may plan to use your saving that you acquired during your time in employment that you maybe planning to use, you do need to consider how quickly they could be swallowed up.
Running a quick credit check on yourself can be a good start, so you know your position if you need to contact your bank for funding.
Start Up Loans and Grants
Start-up loans and grants are offered by the Government and underwritten by the banks to budding business people looking to start their own business.
A proven track record will be required and have a clear plan for how you’ll develop and grow your business, you may be able to access some funds.
Friends and Family
Asking family and friends to invest in the business by offering funds for the start-up is also a good way for them to become investors and make a greater return on their savings compared to bank interest rates.
A major benefit is that you can get quick access to the funds, and not have to go through the hoop-jumping that you experience when trying to access a bank loan.
This fact is confirmed by research that was published in May of this year, 48% of small businesses in the UK refuse to borrow money from UK banks compared to just 14% that do.
The downside could be an impact on personal relationships, particularly if you’re asking for a loan that you somehow find yourself unable to pay back.
A bank loan sounds like the perfect answer to your problem! Sadly, as you are a new recruitment business, the bank may be reluctant to lend to you as you have no proven. Tract record.
The bank may lend on the strength of a personal guarantee or security against your home in order to access funding for your recruitment agency.
Apply for Specialist Recruitment Finance
Most new recruitment business owners consider some type of specialist recruitment funding.
As we specialise in providing funding for start-up recruitment agencies, by offering provides support that your start-up recruitment agency requires.
This leaves you free to offer quality service to your clients and candidates.
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.