Many column inches have been written about the struggles of the recruitment industry over the Covid-19 pandemic. But, as the vaccination programme continues at pace, there is much to be optimistic about as the UK economy starts to pick up.
People frequently ask me if it’s the wrong time to open a new recruitment business, given the backdrop of the coronavirus pandemic. The answer depends a lot on the market. Clearly, for most of last year, it would be tough for a recruitment start-up. However, right now, I’ve never known a better time to set up a recruitment business.
The economy has really taken off in the second quarter of this year, and I see it continuing to accelerate for the rest of 2021 so it should be a fabulous year ahead for recruiters. With a significant increase in roles, and the number of the recruiters employed in the UK significantly down compared to the start of 2020, the number of clients hiring per recruiter will sky rocket. This makes it the best possible time to launch a new recruitment business to capitalise in these unique times.
Economic timing
The economy seems to be recovering much quicker than expected. This rapid growth has already brought a considerable rise in new vacancies as companies look to restart stalled projects, staff-up again and release some much-needed spending.
With increasing optimism around the UK’s vaccine roll-out, there is every reason to believe that these booming economic conditions will continue for the rest of this year and probably into Q1 of 2022. In addition to the domestic scene, many international markets are also entering periods of growth – perfect for any recruitment start-up with an international focus. The US economy, in particular, has seen a huge lift over the past few months.
One of the most critical things for any start-up is bringing money into the business as soon as possible. Recruitment is often at the pointy end of any economic changes, so it’s especially crucial for new recruitment businesses to make the most of periods of growth.
In a growing economy (even one recovering from a historic fall), there will be lots of opportunities for the ambitious start-up to make money and make it quickly.
It really is a case of ‘make hay while the sun shines.’ If you have an effective business plan and marketing strategy behind you, you can use this cash to build a rock-solid business foundation with a platform for future growth. In my ten years of launching new recruitment businesses, there has never been a better time to start up than now.
Building on upcoming growth
As with any economic boom, there will come a time when things start to plateau. I’m convinced that we will continue to see extremely high growth into the first quarter of next year, but then I see the growth slow from thereon. If you have set up in the boom of 2021, you need to be aware making money won’t always be as easy as it was in this high growth phase. Things will start to slow.==9
After making money quickly during the growth period, you need to ensure you make the most of this solid cash base you have built. Here is my advice on how to avoid coming a cropper when the easy money tails off.
There is an old saying in recruitment that goes, ‘placements are vanity, invoices are sanity, but cash is king’ – and it’s true! Getting an early understanding of your cash flow is essential to the long-term health of your business. Simply put, one of the main reasons recruitment businesses fail is that they run out of cash.
Cash flow is more than just understanding what cash you need to bring in to cover initial start-up costs; you also need to plan for those rainy days. I recommend that any new recruitment start-up works out the average running costs based on their last three months of trading and keeps at least one or two month’s running costs in the bank.
In addition to cash reserves, you also need to consider your tax liabilities. Your first tax bills won’t be due until your second year of operations. As you will have been used to having tax deducted from your salary, you will need to prepare for when these bills come. Fail to do this, and you could find yourself in real difficulties when your first corporation and personal tax bills land.
As a very rough guide, account for 20% of the money you take out of the business to be required for your personal tax bill and about the same for your corporation tax bill. As you can see, if you aren’t aware you need to keep 40% of the money you take to one side to pay for these bills, you may not make it through the second year of trading!
Avoid getting complacent
While it may sound counter-intuitive, having a flying start can actually have negative long term effects on a start-up business. If you enjoy early success, you can find yourself slipping into a mindset that things will always be this easy. This risks complacency and overconfidence and even a feeling of business immortality. Once in this mindset, it can be easy to overlook the everyday tasks that will sustain your business long term and have an adverse effect on your attitude to business risk and cash flow management.
Getting complacent can lead to you ‘winging it’ and dealing with issues as and when they arise, rather than adequately preparing and accounting for them in your cash flow. While a recruitment start-up doesn’t require huge capital outlays (like stock or machinery), there are still things that you will need to pay specialists to handle, e.g. accounts, and ongoing costs like job adverts, Linkedin licences etc.
Winging it can also stop you from doing those small everyday things, like keeping your database up to date, as you are enjoying success without it. Failing to prepare not only throws off your cash flow planning, it can get you into bad recruitment habits and eat up a lot of your valuable time further down the road when the issues arise from sloppy practices.
For any start-up or small recruitment business, your time is better spent doing what you do best – billing and bringing more cash into your business, not problem solving when these issues come to a head.
There are more common recruitment start-up mistakes, on my blog on the Davidson Gray website.
Cautious optimism
With those notes of caution in mind it’s an excellent time to set up a recruitment business. With a rapidly accelerating economy and an optimistic outlook for sustained growth for the rest of the year, there will be many opportunities to quickly make a lot of money.
Just make sure to use that solid cash base to build off, both now and when the boom levels out next year. Preparing for the future and getting a grip on your cash flow will give you a strong, stable business for many years to come.
