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Guest blog from Simplicity.
According to figures released by Companies House, over 6,000 recruitment businesses were registered last year. Even though it is common knowledge that the recruitment industry is enjoying a period of growth, this is proof that the industry is booming.
However, just because confidence is strong, it doesn’t mean all recruiters should leap at the chance to go it alone and leave the relative safety of working for someone else. Being a great recruiter is one thing, but starting and running a successful recruitment business is a different matter.
Recent reports tell us that 1 in 5 (20%) of all new businesses in the UK fail within the first year. Furthermore, within three years, that figure rises to 60%. Why? Because the amount of money a start-up business requires is underestimated. Without sufficient funding, recruitment owners will quickly struggle to invest and grow their business and pay their workers and themselves. At best, business growth would be heavily restricted, and at worst, their business would go bust.
A good method to go by when starting is to assume your business might not receive money for up to 6 months. This may sound over the top; however, placing your first candidate often takes over a month. Furthermore, if you are working in permanent recruitment, they will often have to serve a notice period of up to three months in senior positions. And, before you know it, you’ve left it five months to send your invoice, and payment may not arrive until month six. This all adds up.
Bank loans are believed to be the primary income source for many recruitment business owners. Still, in recent times, many banks will be cautious when providing funds to a start-up, especially if they have no backup records. Even if you can acquire one, it is a short-term loan and, unfortunately, is only a temporary solution.
For many recruiters, factoring has long been the preferred method of funding. While there are certain advantages to factoring, there are several disadvantages too.
Factoring by default imposes concentration limits – the maximum amount the provider will cover for a single client. So, if you plan to work with a small number of large clients, these limits could restrict you from gaining access to your profits.
Also, the longer it takes your client to pay, the more expensive your factoring facility becomes with interest continually accruing over time for late payments. Not only that, this will also reduce the total amount you can borrow. So you incur additional costs, and both your profit and access to available funds will be significantly reduced too.
