5 Ways Recruitment Agencies Fail

Every year more and more recruiters start their journey into setting up and running their own recruitment agency in the hope that they will become successful business owners.  While most will work hard to succeed in this thriving industry there are some that will not be able to meet the required demands and end up failing even before they have begun.

Over the years TBOS has seen a few recruitment agencies have all the good intentions of starting a successful agency but have fallen by the wayside for a number of reasons.  Below are a few reasons that we see why an agency may fail:-

  1. DIRECTORS TAKE MORE MONEY THAN THE COMPANY IS MAKING

This is the main reason we see why most recruitment agencies fail.  Most directors need a certain amount of funds in order to secure their social standing and when an agency is doing well often so these types of expenditure will increase.  When the business starts to falter it can be very hard to relinquish on these personal expenditures meaning that the business will need to continue to support these outgoings.  Directors will use the excuse that they didn’t know they were taking too much from the business but if you have regular management reporting this is often not an excuse.

  1. FALLING BEHIND ON HMRC RESPONSIBILITIES

When you start a recruitment business everyone knows that there are taxes that need to be accounted for and paid.  However the timings for making these payments can seem a long way off (such as Corporation Tax which is due 9 months after the company year-end) and the temptation could be to dip into these funds to pay for further expenditure in the hope that the business can recoup the cash flow later on.  It is important to understand what funds within your bank account are available funds and which funds are tax monies due so as to not get behind with your HMRC responsibilities.

  1. TOO MANY BUMS ON SEATS

We see many different types of recruitment directors coming through TBOS, there are the ones that want to grow a small agency and the ones that want to grow big as quickly as possible.  Both can be done easily as long as you can afford to grow the business in line with the sales coming in.  Too many agencies with large numbers of staff are hung up on having desks full and often take their eye off the fact that some of those staff are not covering their costs.  Having ways of monitoring staff performances and their cost against profitability are important to ensure that you do not keep people employed for the sake of it.

  1. LACK OF FOCUS AND DIRECTION

When a recruiter starts their own agency they are often extremely motivated and committed to grow their business as quickly and as profitably as they can.  This takes some careful planning and lots of dedication and it is important to maintain this.  If business starts to drop or even if the business is doing really well it is important to not take your foot off the gas and continue that momentum and drive.  It is also a good idea to concentrate on one business or one industry at a time as we see some directors start looking at different avenues before they have perfected their existing business model.

  1. MAKING UNPROFITABLE PLACEMENTS

When a recruitment agency starts it can sometimes try to win new business by undercutting the competition or professing to being an honest recruiter by not overcharging the clients. However this may seem like a good idea in principal but every business has an overhead that needs to be covered and by cutting your margins could mean that you are actually making very little profit (or no profit) once you take out all of the business expenses and taxes.  Being an honest recruiter is about providing good quality candidates not about overcharging your clients.

TBOS provides all the tools and expertise we can to try and ensure that the agencies we work with are as successful as possible.  However as we are not the directors or shareholders of the businesses we work with and we have no control over the clients, candidates, placements and consultants it is up to the business owners to make their own decisions on the future of their agencies.  TBOS provides up to date management figures so that the directors can hopefully control their spending and know how their sales balance against their overheads.  Also TBOS will have regular meetings with agencies in distress to ensure they have every chance of coming out of a dip in profitability and staying ahead of the game.

For more information on how TBOS can help with your recruitment agency with its back office and accounting needs then please contact our office.