Many of the new start recruitment agencies are set up by ambitious recruitment consultants who often have not been privy to the experience and knowledge of the in’s and out’s of being a director of a company.  Having the skills to make a contract or permanent recruitment placement is only the first step to growing a new recruitment agency as understanding contracts, compliance, time management, cash-flow and accountancy processes is required to ensure that an agency is successful in the long term

Below are a few things a new director needs to understand when starting their own recruitment agency:-

MOTIVATING YOURSELF
Most new recruitment agencies will often be started by one or two consultants; so the first few months can be a very trying time to get used to the quiet times. Keeping yourself motivated to put in the hours, make the calls and send the CV’s without having someone telling you to do it can be easier said - especially when you have no one next to you.  Consider working in a serviced office to get that social environment and also to have somewhere to go to work each day instead of working from home.  Also, do not rest on your laurels once a placement is made and start celebrating as the next placement needs to be made to ensure the continuity of the business.

MANAGING CASH-FLOW

When your prior experience has been to just make placements with no worries on cash-flow, this can suddenly become a distraction that was not expected.  Managing your cash-flow doesn’t just mean you can spend what is in the bank account if you have it, but understand what money you have and what funds are due out and when.  Keeping track of what money is due in, what your HMRC liabilities are and what suppliers are due is the only way to get a true representation of whether you have the cash to pay yourself.

IMPORTANCE OF CONTRACTS AND COMPLIANCE
Contracts and compliance can often be a whole new arena for a recruitment agency director especially as the responsibility for each placement falls to them. If contracts are not signed, compliance is not completed or legislation is not followed this can lead to legal action, fines or being sued by clients or candidates.  Ensuring that you have current contracts (not borrowed contracts), keep up to date with legislation and ensure you have all compliance required for your industry to make a placement (i.e. ID, references, etc.) will ensure you can reduce risk to your new agency.

UNDERSTANDING VAT AND OTHER HMRC TAXES

“Nothing can be said to be certain, except death and taxes” and ensuring that you understand pay the correct taxes can avoid the death of your recruitment agency.  Understanding PAYE, VAT and Corporation Tax (and potentially CIS) is important to ensure you are accounting for these correctly and planning the cash-flow to ensure you pay them on time.  VAT is the main tax that can confuse new directors due to the various tax schemes (Flat-Rate, Cash Accounting or VAT Accounting), reclaiming VAT on certain expenses and understanding that cash paid into the bank may have a VAT element due to HMRC on the next return.

MAY NOT BEING ABLE TO TAKE SALARY IN FIRST 3-6 MONTHS

Moving from being an employed recruitment consultant on a salary and commission structure, to running your own business where the pay cheque depends on whether you make a placement and if the funds have been received can be a big change to a person’s psyche.  It is often advisable to ensure you can survive on a minimal salary and have some savings to survive at least 3 months before deciding on when to start.

DOING PERSONAL TAX RETURN ON DIVIDENDS TAKEN
Recruitment consultants are used to being employees where the money received has already had the correct taxes taken but when a new director takes money from their company it can often be as a dividend. Dividends are paid on the profits generated from the company (after corporation tax) and the taxes can often be much lower (to try to incentivise entrepreneurs to start their own business), and are paid on their personal tax returns.  However, if you have never done a personal tax return before this can be a new experience and it is advisable to get some advice from a personal accountant to ensure these are done correctly and in the most efficient way.

TBOS has helped many recruiters with their first steps into setting up their own recruitment agency and gives help and advice on the pitfalls they may experience.  As part of the services provided by TBOS we manage the bank account and cash-flow to allow the agency director to concentrate on selling instead of being affected by these issues.  The above list are examples of the questions asked on a weekly basis by enquiries our office receives; TBOS ensures that the new agencies we form have the correct systems and processes in place and are followed to ensure the directors avoid these issues affecting the growth of their agency.

For more ways on how TBOS can help new start recruitment agencies with the above issues please contact our office on 0845 881 1112