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Starting your own Recruitment Company

Here at SureCert, we’re big supporters of start-ups. We understand that desire to do something new, do it your own way and be your own boss.

Recent figures from the REC suggest that recruitment’s in a renaissance, with big billers breaking records and revitalising the industry. After a tricky few years throughout the credit crunch, annual revenues are now passing £30 billion, placing Britain firmly near the pinnacle when it comes to recruitment. With over 8,000 recruitment businesses successfully operating in the UK and an industry worth over £26bn, it’s little wonder then why so many people see recruitment as a viable business proposition. Not only is there a clear demand, but it’s also potentially a very lucrative industry, with fairly limited setup costs.

However, it’s not for the average pencil pusher – as long hours, a great sales technique and a good business model is required to ensure you survive in an increasingly busy marketplace.

Make your recruitment start-up a success

So where do you start? What are the essentials? And how can you make your recruitment start-up a success?

Simply Business has some great advice. Here there are top-9 considerations.

1. Be prepared for hard graft

While you can make quite a lot of money from a successful recruitment business, it’s worth remembering that there’s no such thing as a free lunch.

Due to the fact you’ll often be dealing with people who themselves will be working, you’ll have to work longer hours in order to accommodate them and provide them with a worthwhile service, so don’t expect to be clocking off at 5.30 everyday!

Even if you fail to find your candidate a role, they and the employer will remember you if you can at least provide a focused and lengthy service. They may even recommend you to their friends and business partners.

Aside from all the regular entrepreneurial traits required to start your own business, the most important skill to have in order to make your recruitment business successful is sales – because, in recruitment, you are selling your candidate to the employer.

Make sure you always meet your candidate face to face and inspect their CV meticulously before pitching them to a recruiter.

You want to gain a reputation for supplying the best candidates, so being seen to be attempting to offload anyone will earn you a reputation of being dishonest and even underhanded.

However, recruitment is unlike any traditional sales role, so remind yourself of the importance of the situation. You’ll be dealing every day with people’s livelihoods and careers, so make sure to respect that.

2. Choose your recruitment business model and pricing wisely

While the traditional agency model of a high-street shop front still exists, low-cost online start-ups are beginning to take up a larger proportion of the industry.

Both have their advantages, but it depends on which industry you’re looking to recruit into, and the amount of cash you’ll have upfront.

While a typical, generic high street agency has the benefit of attracting people walking by and looking for work, other industries, such as the media, are so digitally focused a physical presence may be unnecessary. You’ll need to work out your target market and what will be important to them.

With regards to pricing, generally, recruitment agencies will either charge their fee via commission or just by a flat rate.

The rate of commission correlates with the successful candidate’s salary and is worked out using a percentage. For example, a more junior role might start in the region of 9 or 10% of the annual salary, so for a £10,000 a year role, a client may pay £1,000.

From then on, the fees work a bit like taxation. As the salary increases, so too does the percentage. For roles up to £15,000 you will typically pay 13 to 15%; up to £20,000 is around the 17 to 18% mark, and in excess of £20,000 you are likely to be charged 20% to 25% i.e. £4,000 upwards. High-end niche or specialist recruitment agencies and executive search consultants can charge 30% or more for jobs attracting six or seven-figure salaries.

Most people are familiar with the notion of paying recruiters commission, but it’s by no means cheap and if you’re looking to target small businesses, for instance, it may put them off using you. For that reason, a lot of new recruitment firms promise a low-cost, flat-rate fee.

A flat rate fee is a one-off payment, which fluctuates pending on the conditions of the agreement between the recruitment agency and the client. While the appeal to a client is obvious, if you do choose to start an agency on a fee-basis, you’ll need to make sure the costs will work for your business. It’s likely you’ll need to place a higher volume of candidates than if you operate a commission-model.

3. Find a niche for your recruitment agency

One of the most important elements in starting a business is identifying your target audience. In what can only be described as a saturated market, it’s essential that you offer a unique recruitment service that sets you apart from big competitors.

Think about any particular unexploited industries or regions you could potentially hone in on. With today’s technologically connected world, you can recruit people hundreds of miles away online meaning geography is no longer an issue.

Consider picking one industry and sticking to it, as too broad of an appeal will mean you could be competing against too many players.

4. Consider Franchising

If you have a bit more to spend on a new business, you could consider becoming part of an established recruitment company by becoming a franchisee. ‘Recruitment in a box’ may prove to be a much more expensive initial investment, rather than founding your own company, but it does come with a host of benefits.

Not only will it help you get your business off the ground, but it will also provide you with marketing materials, advertising, and software, and, having already built up a respected profile, may have already established a relationship with businesses and candidates.

Recruitment franchisee opportunities will normally require an initial investment of at least £24,000.

5. Keep on top of rules and recruitment regulations

While there is no actual official requirement for any training or qualifications to set up your own recruitment agency if you’re coming from an outside industry, it’s highly recommended you at least attend a few training courses.

These should, at the very least, help you to familiarise yourself with the need-to-know rules and regulations of the recruitment industry such as what information you are and are not allowed to give the candidate and the hirer, as well as issues around anti-discrimination, holiday pay, and so on.

The Recruitment & Employment Confederation (REC) offers training at all levels, from a one-day workshop in business planning to a degree in recruitment practice. Areas covered include an A to Z of training, sales and marketing, legal training and leadership.

While availing of such training courses is optional, your recruitment business must comply with the Employment Agencies Act 1973.

The act covers what you can and can’t charge for, what information you can disclose to clients, how to advertise and how to deal with someone below the age of 18 among other things.

Other regulations governing the industry include the Employment Businesses Regulations 2003. This puts an emphasis on the differences between an employment agency, which introduces workers to a ‘user’ or client who then enters into a contract with the worker, and an employment business, which enters into a direct contract with the worker and then contracts them out to employers.

Also, read more on how to meet compliance in HR in our in-depth insight article

6. Build a brand

To be a success you’ll need to convince clients that you’re the best agency to bring them candidates, and with a strong brand behind you, this becomes infinitely easier.

Branding is vital as it sets new agencies apart from the competition, and it embodies all you are and aspire to be. Winning candidates and clients can start long before you engage with them – everything they’ve heard or seen about you is tied up in your branding. The bigger your brand the stronger your pull so start building an online presence immediately

7. Find your finance

Firstly there’s the traditional option of seeking a loan from the banks, or alternatively, you could turn to recruitment finance providers. Elsewhere there’s the option of sourcing cash through initiatives like James Caan’s Recruitment Entrepreneur fund or government-backed schemes like Start-Up Loans.

8. Learn to live lean

Even with finance behind you, it’s likely that life is going to be tough for those first few months. Not only will you face all the fresh expenditure involved with running a recruitment startup, but you might even face restrictive legal covenants if you’re coming from an in-house job.

Typically lasting for around six months and designed to prevent you from taking clients and intellectual property, most recruitment companies will put these agreements somewhere within an employment contract. With this in mind be sure to leaf through these if you intend to work with clients from previous jobs, as you might face a litigation battle if an agreement is broken.

A repercussion of this is that when you initially go it alone your list of clients can take a hit, with relationships built at previous companies effectively lost or put on hold. It’s still possible to shrug this off though, as Alastair Millar of Peopleforce suggests:

Be patient. You can always win those clients back. Starting up will bring these sorts of hardships but it’s worth it in end. Just build a leaner business and bridge the gap with new clients till you can legally get them back.

9. Don’t forget the dull stuff

In comparison to many industries, recruitment has relatively few barriers to entry, but it’s not as straightforward as it initially appears – as Alastair Millar and Joe Brown discovered recently.

Co-founders of Brighton-based recruiters Peopleforce, they set up shop in July 2013, seven years after beginning their recruitment careers at the same global recruitment company – and making the transition was tough according to Alastair:

First we had to work out how to finance our contract payroll which was a huge headache. We outsourced that in end as it made sense financially and logistically, but we still had to shoulder responsibility for all the other rigmarole – accounting, banking and all the bills involved with the essentials like broadband, databases and job boards. Let’s just say it was a little frightening and those first few months were tricky. A year or so on, though and Peopleforce is going from strength, with big hiring goals of its own. So, what would be their advice for the aspiring startup?

Joe suggests:

Check all your expenditures with a fine toothcomb. And realise you’re not just a recruiter – chances are you won’t have the cash to outsource and you’ll need to pick up a fair bit of admin.

See also our blog on outsourcing HR Functions.

What are you waiting for? The recruitment world is your oyster – and it’s time to go fishing…

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