One of the greatest stumbling blocks for small but fast-growing recruitment agencies is managing cash flow.
The particular challenge in this space is that each have to pay out to the contractors placed in client companies before those companies make payment. In all too many cases, even post recession, with demand for skilled workers growing, banks are not willing to step in and help here.
It was to fill this gap that two experienced recruitment professionals set up Sonovate, as a way of providing finance to the contract sector. Its offering is simple and more flexible, it says. With more than 30 years experience in the recruitment business, its founders know more about the financing of recruitment agencies than the banks and therefore don’t need to ask for certain documentation or put time consuming processes into place, they claim.
Today the business, which was founded in 2011 and employs nearly 30 people, is worth £25m and has the UK banks knocking on its door.
Ironically, given that the aim of Sonovate was to help companies which were finding banks unhelpful, co-founders Richard Prime and Damon Chapple had to look to the US rather than relying on British banks to help finance the company.
Today the company, based in London and Cardiff, is already challenging the banks in a sector these institutions have dominated for over 30 years. Already the founders say that it is outperforming the banks on a month-to-month basis in an industry turning over £30bn through thousands of small and micro businesses.
In addition to the £10m funding line from US bank Prime and Chapple, Sonovate had previously secured a £4m investment from tech angel investor Paul Birch. The business then went on to invest £1m to develop technology that improves raising invoices, time sheets credit checking and chasing late payments.
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“Before founding Sonovate I worked in the recruitment industry for almost two decades,” said Prime. “As a recruitment agency placing contract or temporary staff, you have to pay the contractor before you get paid by the client, which can cause major cash flow problems.
“Traditionally a lot of agencies are forced to go to banks to secure the necessary funding to overcome this. I loved working in recruitment, but became increasingly frustrated by the outdated and totally inflexible products offered by the banks in this regard. These finance products are not tailored to the unique requirements of recruitment agencies and were really stifling the growth of the industry.”
It was this frustration that prompted Prime, who had worked for a number of agencies, to start on his own. “Launching my own business is one of the best decisions I’ve ever made,” he admitted. “It’s so rewarding to know we’re making a real difference to recruitment agencies, and challenging an industry the banks have dominated for too long.”
Sonovate will finance UK recruiters with up to £250m over the coming three years, and over the next four to five years it will support over 1,000 recruitment agencies.
“Before Sonovate, recruitment agencies placing contractors had no choice but to use the traditional, outdated finance products offered by the banks,” commented Prime. “Now they don’t have to because we are offering an alternative designed specifically for recruitment agencies, to make their lives easier and to help them make more placements. We’ve been very successful since launch – we have over 260 happy customers and we are already outperforming the banks in terms of new customers signed each month.”
The current offering has evolved following a few years of trial and error. Originally, in 2012, Sonovate provided a complete service in a box to recruiters who wanted to start their own business – including tools for website management, branding, time-sheet software and contract finance.
“This business was very successful but it wasn’t long before we realised that it could be even more successful if we just offered the one thing we provided that no one else did, contract finance,” explained Prime. “Taking the decision to change the direction of the business was a difficult one to make – it took a lot of hard work and determination. But it was the best decision we ever made.”
This ability to pivot and to react quickly to what customers were telling it and what they were looking for, has been essential according to Prime.
Since January 2014 in particular, Sonovate has experienced rapid growth. “We’re taking market share from the banks and helping more agencies than ever secure the finance they need to grow, but it doesn’t stop there,” said Prime. “As well as becoming the go to provider of finance to the recruitment industry in the UK, we have plans to launch over in the US and expand across Europe, too.”
Listen to your customers, Prime advised other small business and would-be entrepreneurs. “It might sound obvious, but the key to running a successful business is to listen to your customers and prospects,” he explained. “Do your research and spend time finding out their needs. This will help you refine your offering and give them the product they really want, and desperately need. You’ll most likely find that the customer is always right, and you’ll be on to something great.”
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