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Raising finance for a new recruitment agency.

There are so many things you will need to consider if you are thinking of creating your own recruitment agency. Premises, people, brnading and even the company name are just some of the things that will bounce around your head in the planning stages. Perhaps the most important aspect of preparing to launch a recruitment agency relates to finances and money.

How much money does a start up recruitment agency need

There is no finite answer to this question, but if it’s your first time addressing this question, I’m fairly certain you’ll underestimate the amount of money required. Indeed, your starting point may even be ‘how much money have I got’. If this is you, think very carefully before you proceed.

The art here is in having enough money to see you through the initial costly phases where you are spending lots an making little, to the point where your monthly income always exceeds the regular costs (operational profit). To work this out you’ll need a spreadsheet which details anticipated costs (best middle and worst) and expected income (best middle and worst) and a ‘bank’ figure that tracks your fluidity at any point. You can then experiment with the ‘what if’s to see the likelihood of staying in businesses to the point of operational profit.

As a new recruitment agency you will need to consider monthly losses for at least 6 months and possibly up to a year before you can be sure of a regular monthly profit. The best advice I had at this stage was to take the worst figures and make them worse by another 15% and see how long you survive for!

Once you have decided how much you need, the next question is, where do you get it from. You may be one of the lucky minority with a suitcase under the bed. However, the chances are you will need to generate funding from somewhere.

Bank funding

Most banks will consider loaning you the money, but expect to have to justify your plans in detail to someone with no clue how to run a recruitment agency and probably no experience at running a businesses. On the plus side, the exercise of having to create a working financial plan is excellent in getting you to consider all that you should. Loans can be paid off over longer periods, such as 8 or 10 years meaning the monthly payments may not be too bad in amongst the costs of your business. You may also have to watch out for request for security. If you recruitment agency is brand new, the chances are they will want you to put your house up against the loan as security

Venture capital

I still find it surprising just how many people exist who want to invest in new businesses and have the money to do so. In return they will take a share on your business, demanding dividends from profits as you grow. In addition, they will want their say in how the business is run. If you’ve been wise, you will seek investors with knowledge of the recruitment market who can add value to your management team.

Which ever way you choose to finance your company, my parting advice is just to make sure you have enough. If your business is successful, you will have no problem paying back a loan within the grand scale of costs in running a recruitment agency. However, it’s the biggest shame on earth to see a good recruitment consultant fail with his own agency simply because he didn’t plan to have enough cash.

Raising finance for a new recruitment agency. / Author: JSB

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