Every year, thousands of new recruitment agencies are formed at Companies House by first-time directors who often have no previous experience running a company. During those first few months whilst they are finding their feet, they can make the same mistakes that other recruitment agency directors have made previously.
Below is a list of some that we have noticed from new recruitment agencies we have helped:-
BELIEVE A CLIENT BELONGS TO THEM
When you leave your previous agency, you may believe that the clients you used to work with will follow you to your new business. However, in some cases, clients like the stability of the previous agency and will not change. Also, contacting previous clients and candidates may cause you to breach your restrictive covenants and cause you to have legal proceedings against you.
OVER-PROJECT AND UNDER-DELIVER
When you start your new agency, it is advisable to create some financial projections, but these need to be conservative and take into account that your first year is not going to be an easy one. It is easy to assume you will complete the same amount of deals as you used to do at your previous agency, but this may not happen until year two, leaving you disappointed and affecting your anticipated cash and income.
UNDERCUT OTHER AGENCIES FEES
One of the big mistakes is believing that to win business as a new agency; you have to offer clients a discount to undercut the competition. However, this can backfire as your clients will then expect this on an ongoing basis, and you will be underpaid for the hard work you are putting in to fulfil a clients brief.
SPENDING MONEY IN THE ACCOUNT WHICH ISN’T THEIRS
As the business’s financial side can seem alien to a new recruitment director, it is important for you to understand what money in the business bank account is available to spend. Often the company bank account will hold monies due to HMRC (VAT, Corporation Tax, PAYE) which needs to be taken into account before company funds are spent.
SIGNING UP TO LONG-TERM AGREEMENTS EARLY ON
As the first year of a new business is often very uncertain, we advise that you avoid signing up for long-term contractual agreements (unless you can guarantee there is a sufficient income to support this cost). Avoid long office leases, company car contracts and even consider whether you have the contract placements to justify an invoice finance arrangement early on.
SPENDING MONEY THAT HASN’T YET ARRIVED
Managing cash-flow is a vital skill that you need to learn when running a recruitment company, especially when you were previously paid a salary and commission on deals that may not have been paid yet. When you complete a new deal you need to ensure that it has been invoiced correctly, it is chased to be paid on time, and only once the funds have been received can you then spend this money.
USING “OLD” CONTRACT TEMPLATES
Purchasing new up-to-date contract templates is vital to ensure that you are engaging with your clients with current legislation, and your new business is protected. Try to avoid using templates “borrowed” from your previous employer or online templates downloaded for free which may not be current.
CONCENTRATING ON CUTTING COSTS INSTEAD OF BUILDING THE TOPLINE
The focus on any new business should be on making more placements to grow the top line. However, many new businesses will worry about each small cost which can distract them from spending time on the phone with prospective clients.
TAKE ON TOO MANY STAFF EARLY ON
Employees can be one of the largest costs on any profit and loss sheet as it will include the salary and commissions, employers NI, pensions, and desk costs. Also, any new staff member can take 3-6 months to start being profitable, and the training/monitoring aspect can distract the directors from continuing to bill and grow the business.
BELIEVING THEY CAN WEAR ALL THE COMPANY HATS
When you start a new business, it is important to focus on the part that makes the company money, and any aspect that you can outsource to another party should be considered. Services like back office, accounts, marketing, IT and HR should be outsourced to ensure that the director is not distracted from making placements and growing their new business.
Whilst it is usually impossible to not make any mistakes when starting a new business, it is important that the director learns from these and puts measures in place to avoid them happening again. It is also important to speak to other business owners to discuss which methods can help make your new company a success.
TBOS has helped over 200+ new recruitment directors form their first recruitment agency by providing a fully comprehensive back office and accounting solution. Please contact our office if you would like further information on how we can help your agency.