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Tips For Starting A Recruitment Business

Tips For Starting A Recruitment Business

2022 is set to be a year of growth for businesses. Many businesses are predicted to look to hire new staff in 2022 in an effort to expand their workforces. According to the Office for National Statistics, the number of vacancies in businesses grew by 113,600 from November 2021 to January 2022. As those numbers continue to rise, there is a growing pool of talent waiting to be placed in new positions as well as their former positions available for new hires.

As such, the creation of new positions within UK businesses presents an opportunity to the recruitment industry that is not to be missed. All of these newly created positions will require expert recruitment professionals to help fill them with the best possible candidates. With so much potential in the recruitment industry, it is the ideal time for business-savvy professionals to strike out and start a recruitment business of their own.

Though there is every opportunity for success, starting a new business in any sector can be challenging. For those looking to start a recruitment business, there are some points to be considered to maximise the likelihood of a new business thriving. From the first steps of starting a business plan through to the relevant laws and regulations to be observed in the recruitment industry, these tips will help anyone looking to start a recruitment business on the right foot.

Every good business begins with a solid business plan

Quite literally, a business plan is a detailed plan for your business. It is a written document that details important information about your business, such as your objectives, strategies, financial forecasts and more.

Having a business plan can be helpful to clarify the idea you have for your business so that you can spot potential problems early on. By setting goals within your business plan, you can measure your business’s progress as it grows.

There are many reasons that a business plan is beneficial. One of the main ones is that without one, you’re unlikely to be able to secure an investment or bank loan to fund your endeavour. A tangible plan can be the key to garnering support from suppliers, future employees and your potential customers.

There are endless sources of business plan templates, including a free template available from the Prince’s Trust. The process is simple; your business plan should cover some of these key points:

  • About you (the business owner) – The start of your business plan will cover details such as the owner of the business’s name, the address and postal code of the business, the business’s contact details and the like.
  • An executive summary – This section should summarise the business, its aims and include a financial summary. Including as much detail as possible will give anyone who reads your business plan a crystal clear understanding of what your business is about.
  • Background of the owner – This section should essentially cover what makes you fit to run a good business ‒ in this case, a recruitment business. It should detail why you want to run a business of your own, your previous experience, qualifications and education and any other points, traits or personal qualities you feel indicate that you would run a successful business.
  • Details about your services – Here is where to get into the finer details of your recruitment business. Describing the type of industries you plan to specialise in, the type of employment (full or part-time), and specific demographics to be targeted are examples of points to be covered.
  • Market research – One shouldn’t go into business without first knowing about their target market. This section of the business plan should go over the types of customers your business will have, where they are based, and what will make them interested in your business. How will your business stand out from the crowd?
  • Financial details – This should be a comprehensive breakdown of all costs your business is likely to incur. This includes startup costs, website development, personnel costs, office rental, insurance, rates and such. It should give a realistic forecast of the profits your business is expected to make in the upcoming years.

There are certainly more points to be covered, so it’s worth doing a comprehensive deep dive on how to write a business plan and potentially use a template, as previously mentioned. Keep in mind that the more attention you put into laying out a good plan, the clearer your roadmap to success will be.

Determine how much to charge for your services

A crucial part of your business plan and your decision-making process as a whole is figuring out how you intend to price your services. Of course, the way your recruitment business’s fee is structured depends on many factors, a key one being whether you will be recruiting permanent or temporary staff.

Permanent employees

When placing permanent employees, recruitment agencies typically work in one of two ways: contingency recruitment or retainer recruitment.

  • Contingency recruitment – This is the most common placement type in recruitment. Contingency recruitment is relatively straightforward, and the agency only receives payment once a candidate has successfully been placed in a position. With contingency recruitment, the placement fee is typically calculated as a percentage of the candidate’s annual cost to the company, usually between 15% and 20%.
    For example, if a candidate is placed in a company with a gross earning of £2,000 per month and the recruitment agency charges 15% as their fee, the recruitment agency would earn 15% of the annual cost to the company (£24,000 per year). In this example, the recruiter would earn £3,600.
    The nature of contingency recruitment is very competitive. There are usually multiple recruitment agencies trying to provide candidates and be the first to fill the same position. It can result in quicker hires, but it does mean that you need to work fast and have access to a large database of talent.
  • Retainer recruitment – Retainer recruitment is usually seen when trying to fill particular positions which require a specific skillset and experience. Rather than being paid a fee after a successful placement has been made, the agency fee is broken up and paid over time. Usually, the retainer is paid in three parts:
    • An initial, upfront payment
    • A second payment upon presentation of a shortlist of candidates
    • A final payment once a successful placement has been made

Receiving a portion of the placement fee at the beginning of the recruitment process allows the agency to focus on finding the best possible candidate for the position, as the position will require a specialised search. The fee is usually calculated as a percentage of the candidate’s expected salary, typically around 30% of their annual cost to the company.

Keep in mind that when you’re working out your agency fees, you should factor in a rebate if your candidate leaves the job after a set period of time. Though the rebate amount and period of time vary between agencies, this kind of guarantee is typically expected by clients.

Temporary employees

With temporary employees, clients usually pay the agency directly. The agency is then responsible for paying the temporary worker. When calculating a fee for temporary employees, take into account the following:

  • The cost of the employee (their salary)
  • Holiday pay (if any)
  • National insurance
  • The profit you wish to earn

The costs of temporary employees are usually paid by the agency and then reclaimed from the client.

When starting your agency, you may want to consider being flexible. Willingness to negotiate your placement fee or payment terms could be helpful when establishing your client base and getting repeat business or referrals.

Identify what sets your recruitment business apart from the rest

There’s no shortage of established recruitment agencies. To be successful, you should establish yourself as a specialist in a specific area. For instance, rather than trying to find a broad range of candidates for different industries, one could consider specialising in IT. Learn the field inside and out, familiarising yourself with the desired qualities, qualifications and experience for different types of positions. When you specialise in a field, your expertise will show in the quality of candidates you present to clients, resulting in more successful placements and making you that much more likely to establish yourself as the go-to agency for that particular industry.

Opening your own recruitment agency will involve startup costs

Recruitment startup costs

When first starting your business, you really only need to be able to make calls and have good internet access. However, if you really want to build your business, these are some investments to consider:

  • A good website – A business’s website serves as the face of that business; a recruitment agency’s website is no exception. There are many platforms available for you to make your own website, such as Squarespace or Wix, or you could look at having a professional design your website. It’s important to make sure that your website functions on mobile devices as well, as many job seekers use their phones to look for vacancies.
  • Software – In today’s digital age, there is software to make just about any part of doing business easier. For a recruitment agency, there are two types of software to seriously consider:
    • Customer Relationship Management software (CRM Software) – CRM software such as Monday or Zoho can help manage your candidates, track job applications and sort candidates by experience, skills and more.
    • Accounting software – Every business owner needs to pay proper attention to the financial side of their business. This includes payroll (if you have any employees), tax returns, keeping on top of invoicing, etc. Xero Account Software and Intuit Quick Books are both excellent options for managing your business’s finances.
  • Office space – Of course, you could run your business remotely. However, a dedicated office space poses many benefits, including giving you a professional space to meet and interview candidates.
  • Insurance – There are a few different kinds of insurance you may need. When you have employees, you need to have employers’ liability insurance. Public liability insurance is also a good idea, considering you would be liable for anything that may happen with clients or candidates on your property.
  • Marketing – With a fair amount of competition, investing in a good marketing campaign to spread awareness about your business is essential.

Financing to start your recruitment business

You’re likely aware by now that starting your own business will come with considerable costs. Putting together the money to finance your business should be a top priority. Of course, you could save up until you have enough money to get started, but that could take more time than you’re willing to wait.

Another option is using the business plan you previously created in order to secure investors or a business loan from the bank. Many finance options are available to eager entrepreneurs, including government-backed start-up loans.

Consider your options carefully before locking yourself into any loan agreements. Pour over the contract and read every piece of fine print to make sure that the repayments plus any interest are something that you have factored into the costs of running your business.

Important recruitment laws and regulations to be aware of

The Employment Agencies Act 1973 is one that heavily affects recruitment businesses. The Employment Agencies Act 1973 (EAA) serves to protect candidates in the recruitment process and also look after the best interests of the hirer. They stipulate how recruiters should operate. It is important to be well versed in this legislation. Some of the important points it covers include:

  • Recruiters may not charge candidates a fee for recruitment services. Additional services such as writing CVs, however, may be charged for.
  • Candidates must receive a full, written contract that covers details such as pay, holiday pay, notice periods, work hours, etc.
  • Agencies may not hold a worker’s pay.
  • It is the responsibility of the recruitment business to make sure that the candidate is suitable for the role, and is responsible for all of the proper checks for skills and qualifications necessary for the position.
  • The vacancy must clearly be advertised as being through a recruitment agency, and the applicant must understand that their CV or application will not be directly addressed to the employer.

Conclusion

Starting any business can be tricky; the same can be said for any attempt to open a recruitment business. Taking the time to plan your business thoroughly is key to its success. And remember that all businesses will go through their ups and downs. Persevere through those rough patches to thrive and succeed.

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