Launching your own recruitment business is the dream of many senior recruiters.
Realising your ambitions is exciting – but with it comes the juggle! Although the recruiter role will be familiar territory, business planning and management present new challenges to the thousands of founders who create their own companies each year.
The immediate priorities can take over – but planning for future scalability and saleability of your agency now is the best way to secure longer-term success.
With so much to consider, our guide will steer you through the early days.
Figure out forecasts and funding
It’s vital to calculate the funds you’ll need when starting your own recruitment business. It’s one of the key topics that we cover during introduction calls with potential founders.
To kick off the process, calculate the (net) income required to cover personal monthly outgoings (mortgage or rent, groceries, utilities, insurance, etc.) and forecast when you’ll be able to pay yourself through your agency.
You will need to consider:
- Your business overheads
- Any one-time start-up costs
- How quickly you can close your first placement(s)
- When you can invoice clients and when they’ll pay (plus, what happens if they’re late)
- How much you’ll pay in tax on income
New founders initially rely on savings or external financing to pay the bills (personal and business). External financing means calculating investment needs (often with professional advice) and finding investors to provide a loan or take a share in the company. It’s also worth knowing that not all investors offer the same thing.
Three common mistakes:
Giving away too much equity. RecruitHub supports founders to secure investment where they typically retain 80-90% of the business, while others launch on our platform from savings with no external investment. In contrast, some recruitment industry investors can ask for up to 70% of start-up equity or even more.
Overestimating forecasts. It’s easy to build a great-looking business on paper, but it’s more important to forecast accurately to reduce risk and take all factors into consideration. 88% of RecruitHub founders outperform their initial forecasts – some by as much as 400% in their first year of trading.
Misunderstanding costs. Modelling cash flow is challenging, so we recommend engaging with a qualified and experienced professional to support you to forecast accurately at the outset, avoiding problems when you start to scale. For the hundreds of new recruitment agencies launched each month, many fail because of poorly planned cash flow management.
Know your restrictions
Most new agency founders have some form of post-employment restrictions.
Depending on how you manage your exit, your former boss might make life difficult for you in your new venture – sometimes if what they’re attempting to restrict is legally enforceable – or not.
What’s enforceable?
In a nutshell, restrictions exist to prevent outgoing employees from unlawfully ‘stealing’ clients, contacts and information from their former employer and negatively impacting their business for a set period of time post-departure.
When it comes to assessing the enforceability of contracts, factors that are typically taken into account include:
- Length of restricted period
- Geography and definition of restricted activities
- Definition of restricted clients and candidates
- Role and tenure of employee
- Up-to-date status of contract
Because each situation is unique, it’s always best to analyse your own individual contract and situation. We’d be pleased to discuss this with you during an exploratory call. It may also be the case that you should take advice from a professional employment lawyer.
What might my former employer do?
Employers can react in many ways to former staff members starting their own firms.
Some are supportive, some are indifferent – but some may attempt legal action to block you from operating in certain ways or seek financial compensation.
No start-up wants to become embroiled in legal battles, so, to mitigate this, ensure a comprehensive understanding of your restrictions and make sure your launch is compliant.
- Don’t download any data prior to resignation
- Understand your restrictions in full, and adhere to them
- Don’t mislead your former employer regarding your future plans
- Be aware of any restrictions that apply to collaboration with or solicitation of colleagues, as well as clients
If you take the time to fully review your restrictions and stick to them, you’re in a strong position for an untroubled launch.
Invest in tech
Under-investing in technology early can be a false economy, slowing the growth of your business and allowing competitors to gain market share.
Whether your vision is for a boutique or high-growth agency, technology is vital for performance, growth, and financial returns.
Tech should automate and speed up the sales and recruitment process, as well as your day-to-day operations. It will also smooth workflows and avoid inconsistencies as your business scales.
- Ensure a steady flow of leads and prospects
- Generate targeted sales outreach at scale, synched in real-time with your CRM
- Automate key steps of the sales & prospecting processes
- Deliver instant alerts of market opportunities, buying signals and active hiring managers
- Defining best-practice across the recruitment lifecycle of your teams
Plan your identity
Branding your business is a balance of creativity and careful thought.
Choosing a name
As you brainstorm, keep these ideas in mind to ensure you get it right from the start:
Do you want customers to know that you own the business?
If you use your name or initials, customers may push for discounts, or ask for more flexibility with payment terms, knowing that you call all the shots.
Is the name available?
The name of your recruitment agency should be unique and memorable. Google your first pick, alongside industry keywords such as “recruitment”, “search”, “staffing” etc. and check business registries (such as Companies House in the UK) to ensure you don’t have competition for your chosen name, as well as making sure web domain options are available.
Is your name future-proof?
Make sure your name will work long term. If you launch your agency as “Medical Staffing Partners” it could be harder to become multi-sector. A single, flexible central brand with specialist divisions, or a generic name with multiple brands, will work.
A toolkit will ensure consistency across your marketing. A basic version includes:
- Logo, including versions for various marketing collateral, socials etc
- Font pack
- Colour palette
Your toolkit will evolve over time to detail things like tone of voice, use of photography, icons and images.
Your content hub should be well-written and well-designed to showcase your expertise, including:
- The agency’s USPs
- Your niche
- Client and candidate testimonials
Again, consider whether the founder or the agency is ‘the brand’. You may struggle to build a multi-headcount agency with the online presence of a one-man band.
Start scaling
One of the hardest challenges when starting your own recruitment business is to transition from a billing founder to a scalable, multi-head business.
As you grow your team, you won’t only be responsible for personnel management but you’ll also handle the infrastructure, processes, finance, technology, marketing and HR of your agency.
Our scaling checklist
Act big
To accelerate growth, it helps to behave like a larger company from day one. Set processes and policies that will work now, and when you scale.
Key processes:
- Sales strategy market mapping & sector assignment
- Talent acquisition, candidate evaluation & onboarding.
- Training & skills development
- Performance monitoring, KPIs & management frameworks
- Incentives, promotions & career development structures
- Employees equity plans
- Reporting and analytics
Use tech to scale teams
Technology doesn’t just have benefits for individual users, it can also be used to shape and drive the way your team works on a day-to-day basis.
Best-practice workflows and expert configuration of your tool stack help your hires to work and behave like experts straight away.
The right technology also improves internal communications and collaboration and – ultimately – revenue.
For a more detailed look at the keys to scaling, check out our Scaling Guide.
Focus on value creation
Many founders launch their agencies with the goal of exiting at a future date, cashing in on the equity value they’ve built.
But a high-value asset isn’t something that simply falls into place, and it pays to plan for later acquisition from the early days.
Often, first-time founders fall into two traps:
- Focusing purely on revenue growth, with no equity value creation strategy
- Lack of understanding of detailed M&A value drivers
Knowing how a buyer might view the business, and what they’re prepared to pay a premium for, should influence how you build your asset from the outset. It’s a common myth that building revenue is the same as building value.
Start early
It’s not premature to consider value creation early on when you’re starting your own recruitment business. Focusing purely on your top line can sometimes mean it’s too late in future to make strategic or structural changes that really impact valuation. It’s about balancing near-term revenues and profits with long-term equity value.
The main value drivers:
What influences valuation is a complex topic, and something we’ve already covered in our other blog on How Recruitment Agencies are Valued.
But in brief, some of the crucial factors affecting recruitment agency valuations include:
- Owner’s role in successful day-to-day operations
- Predictability of future profits
- Quality and trajectory of historic profits
- Compliance with processes and operations
- Agency size, specialism and geographic location(s)
- Diversification and quality of client relationships
- Effectiveness and long-term incentivisation of management team
Want to explore?
We take a collaborative approach to new customer partnerships, working with prospective founders to create a detailed vision and financial forecast of their planned ventures.
We don’t expect founders to ‘pitch’ us their polished business plans – instead, we work together to test and explore the viability of each new business concept, projecting financial performance, founder income and wealth creation potential.
Want to learn more?
Get in touch for a confidential discussion to get the process started.
