Table of contents
Table of contents
Recruitment is one of those industries that seems pretty straightforward. You find good candidates, match them to good roles, and take a nice fee at the end of it. But if it’s an industry you work in then you’ll already know there’s a lot more to it. From the HR side of things to employment law, and all the business admin and cash flow concerns beyond – the list goes on.
If you’re thinking about setting up a recruitment business, here’s a practical walkthrough of what to sort out first.
Before anything else, decide what kind of agency you’re building.
If you’ve worked in a particular sector before, that’s usually your strongest starting point – you’ll already understand the roles, the salary bands and the client pain points.
For example, let’s say you were a manager on a construction site. You could use your expertise to hire contractors. Unless you left because you were really bad at it, in which case, think of something else.
Broadly, you’re choosing between:
Recruiting within a wider pool of clients and candidates will typically translate into more opportunities to match people up. The flipside is that there is more competition from other recruiters, and you might find it harder to show off any specialist knowledge.
This sort of recruitment can be harder to break into without existing contacts or expertise, but you can charge higher fees once you’re known as the go-to agency for that sector.
For example, you could be super niche, recruiting German-speaking ice-skating coaches for the UK (which might be a bit too niche), or sector-specific like an education recruitment company hiring teaching staff.
Permanent recruitment usually means a one-off fee when someone’s hired, so you’ll charge a higher fee but probably won’t hear from the same client that often.
Temporary recruitment can mean you’re responsible for paying and taxing the worker yourself for the length of the contract, and then recovering your costs from the client (with a mark-up, of course). It can have real cash flow implications – more on that below.
These models are all well worth researching if they suit your background or interests. Executive search focuses on recruiting for high-level positions such as directors or senior managers.
Freelance and contractor placement is a bit more like temporary recruitment, solving immediate needs, but they usually have a more technical focus to them.
Most new recruitment agencies start as either a sole trader or a limited company. A few things to weigh up:
Whichever business structure you choose, you’ll need to do your research first, and complete all of the registration requirements. For example, a limited company must register with HMRC and Companies House. A sole trader on the other hand, will register with HMRC – but can forget Companies House even exists. Just like your ex-best mate.
Recruitment is more heavily regulated than a lot of small businesses realise. At a minimum, you’ll need to get familiar with:
It’s worth joining a professional body such as the Recruitment and Employment Confederation (REC), too. Membership gives you access to legal templates, compliance updates, and a level of credibility with clients.
Start-up costs vary hugely depending on how you operate, but the usual categories are:
Because there’s usually a lag between placing a candidate and actually being paid – sometimes weeks, sometimes longer for executive search – you’ll want enough of a buffer to cover your costs for the first few months while invoices are still working their way through.
Otherwise you might find yourself relying on credit to get immediate bills paid on time. The interest charges can make things more expensive as well as being more stressful.
Your fee structure needs deciding early, since it shapes your cash flow from day one:
This is where good bookkeeping is essential. If you’re managing weekly payroll for temps against monthly or delayed client invoices, you need clear, real-time visibility of what’s owed to you, what you owe out, and what’s actually sitting in your account – not a spreadsheet you update once a month.
Software like Pandle can help you track invoices, chase late payments and keep tabs on cash flow without needing an accounting background.
It’s tempting to put finances on the back burner while you focus on winning clients, but recruitment businesses run into more bookkeeping complexity than most small businesses because of:
Getting your bookkeeping set up properly from your very first placement (rather than retrofitting it once things get busy) will save you a lot of stress later and makes life much easier at tax return time.
Once the groundwork’s in place, growth comes down to:
Recruitment can be genuinely lucrative, and the barrier to entry is lower than a lot of industries – but the businesses that survive tend to be the ones with a clear niche, solid financial controls, and a realistic plan for the cash flow gap between paying out and getting paid.
Get the admin and bookkeeping side sorted early, and you can focus your energy where it actually grows the business: on clients and candidates.
Starting a recruitment agency? Pandle can help you get your books in order, so you stay compliant and keep a positive cash flow.
A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!
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