Backed by strong economic growth, the recruitment industry is booming in the UK. Last year, over three quarters of UK recruitment firms reported an improvement in their financial results, with agency work representing 70% of the sector’s total revenue.
If you’re considering striking out on your own and starting a recruitment agency, there’s never been a better time to do so. Find out how to scale your business model, how to ensure your business is compliant with UK legislation, how to pick a business name and much more.
Here is everything you need to know about starting a recruitment agency in the UK!
JobAdder was built exclusively for the web from the very first line of code we wrote. Web was not an afterthought the way it was for most recruitment systems on the market today. The web and mobile are in our DNA and that is one of the most important factors to consider when selecting your new recruitment system.
SETTING YOURSELF UP FOR SUCCESS
Recruitment consultants with mid to high levels of industry experience make up the demographic most likely to create their own recruitment agency. Armed with insight into the mechanics of how a recruitment business works and a (figurative) Rolodex of existing clients, starting up a recruitment agency is a natural career progression for many recruitment consultants looking to take on the next challenge and run their own show.
Don't fit the typical profile of a recruitment startup owner?
Being relatively green is not necessarily a setback when finding your feet, it just means you’re going to have to put in the hard yards when it comes to networking and establishing a name for yourself within your chosen field. To be successful in recruitment, you must thrive off building and nurturing relationships, have an entrepreneurial spirit and a strong intuition (ability to read people). You must be passionate about making matches between good people and great jobs. A healthy dose of competitiveness and a hunger for new opportunities is also essential. If you have a background in Sales, you’ll find the task of pitching a new candidate to a hiring manager (and vice versa) very familiar. To run a successful recruitment startup, you must be able to strike a balance between long-term relationship building – getting out there and promoting your brand, having face-to-face meetings with prospects and nurturing new opportunities – and maintaining enough short-term wins to sustain your business.
If your knowledge of the industry is light on, or even for a refresher, you should attend training courses, conferences and recruitment networking events to familiarise yourself with the industry and strike up some new connections.
Here is a list of training courses in the UK that will set you up with a solid foundation:
Like working 9 - 5?
If working traditional hours is something you’re not willing to compromise on, then you may want to reconsider setting up your own agency. The most common feedback from new business owners – especially those in the recruitment industry who have to consult candidates around normal business hours – is that working long hours is an inevitable part of the job.
THE FIRST STEPS
There are relatively minimal set up costs and barriers to entry for new recruitment businesses in the UK, especially when compared to other industries.
Identify Your Niche
The market for generalist recruitment businesses in the UK is oversaturated.
With that in mind, when setting up your own staffing business, the first thing to do is find a niche in the market where you can add the most value, based on your strengths and connections. Having an existing network of contacts will give you a big leg up when starting out.
That’s not to say that your business should always be restricted to whatever field you choose – it’s likely to expand and diversify over time – but don’t spread yourself thin across multiple non-specific areas in the early stages.
Narrowing your focus will have the added benefit of giving your business a clearer trajectory and allowing you to position yourself as a specialist in your chosen field.
Are you going it alone or will you have a Business Partner?
If you’re going in with a Business Partner, it’s worth giving serious consideration to what value they will bring to the business that you couldn’t find in an employee or outsource to a third party.
Going into business with another person entitles them to control of the business and to a large share of the profits. For those reasons alone, it’s only advisable that you enter into a business partnership on the condition that your roles and contributions are clearly defined from the outset and that you share the same values and goals for business. If you are going into business with a partner, it’s strongly advisable that you do so with someone who you’ve worked with before and who is does not have large amounts of debt.
FACT: Every business partnership must be registered with the HM Revenue & Customs, along with all of its members. To avoid a penalty, registration must be done by 5th October in the business’ second tax year.
Know Your Competitors
Once you’ve decided on your niche, it’s important to know what other players are in the market. Not only will this will help you know who you’re competing against for clients, but also to identify and adopt some elements that make these businesses succeed in the field.
As an industry, recruitment is competitive, but this competition drives up collective standard of its players. This means that if you can keep setup costs to a minimum, grow steadily within your niche and be innovative and tech-savvy while you do so, you will get ahead.
Find A Good Accountant
Your account will be one of your most important advisors, and good accountants are generally best found by referral. Finding an accountant with experience in recruitment is nice to have, but more importantly, find an accountant who you like and trust.
Poor advice, or lack of advice, can be the fastest way to bring a new business undone, so take your time selecting the right one.
TIP: Give Your Time and Expertise Freely. There is a reason recruiters are called ‘consultants’. The best recruiters develop huge amounts of industry expertise and they share that knowledge openly with their clients. Company owners and hiring managers need experts they can call on to discuss the latest salary rates, availability of resources and so on. Be that person your clients turn to, and do it for free – the benefits will follow.
When setting up your new recruitment business, there are a number of legal considerations that you must plan for and take into account.
Registering Your Business
First, you must register your business with the HM Revenue & Customs through gov.uk. When you do so, you’ll be prompted to select 1 of 3 kinds of businesses can you be registered as:
You must register for VAT (Value-Added Tax) if your business’ VAT taxable turnover reaches more than £83,000.
It is mandatory that your business comply with The Conduct of Employment Agencies and Employment Businesses Regulations 2003.
Depending on the nature of your business, you may need to apply for a business license. The most common type of UK business license for recruiters is a Notification to Process Personal Data, which can be applied for through the Information Commissioner’s Office.
To find out if your business will need a license, use this License Finder Tool.
Data Privacy Laws
As professionals who handle confidential information every day, it’s especially important that recruiters are compliant with the UK’s strict data privacy laws outlined under the Data Protection Act 1998.
The Data Protection Principles contained within the Act state that businesses using personal information must ensure the information they handle is:
Conditions About Working With Clients
If you plan on working with an existing group of clients that were acquired through your previous role, or who operate in a similar space to your current role, be sure to review your previous Employment Contract with a fine-toothed comb to make sure that you will not be breaching any of the agreed terms by doing so.
It’s not uncommon for restrictive clauses to written into contracts that deny former employees from doing such things as poaching employees, or carrying clients over into a new role for a period of up to 12 months after terminating their contract.
Examples of these kinds of clauses include:
Having said that, be wary of working with companies that you don’t know, especially when starting out.
FACT: Fee disputes can be dramatically minimised (if not eradicated) by working only with clients you have, or can build relationships with. The majority of fee disputes in recruitment involve transactions with weak personal relationships between client and consultant. If a company holds you at arm’s length and you can’t get a relationship going, the chances of a successful recruiting relationship are slim – especially when starting a recruitment company.
Later on down the line when it comes to hiring staff, here are the 7 steps you must follow:
Employers' Liability Insurance
Employers’ Liability Insurance is mandatory in the UK if your business employs any staff, and must be obtained from a properly authorised insurer. Find a list of authorised UK insurance firms here.
A lot of small businesses find that they need to consult insurance brokers to cover the cost of Employers’ Liability Insurance. Find a registered list of UK insurance brokers here.
FACT: You could be fined up to £2,500 for every day your business is not insured
Employers' Liability Insurance
Once your business is well-established, if you have a sizeable number of employees and clients plus an office space, you should look into getting Public Liability Insurance.
Public Liability Insurance covers you for any injuries or losses sustained by staff or clients because of your business e.g. on your premises.
Explore Public Liability Insurance options for UK businesses here.
Employers' Liability Insurance
If you’re self-employed thanks to your recruitment business and you earn over £5,965 a year, you must pay National Insurance.
National Insurance contributions allow you to qualify for benefits such as a State Pension, Maternity Allowance and Bereavement Benefits. The amount of tax you pay is dependant upon your business profits. For the 2016 – 2017 tax year, self-employed individuals paid a rate of either £2.80 a week, 2% or 9% of gross annual profits, depending on what income bracket they fell under.
Find out more about National Insurance here.
GETTING YOUR BUSINESS OFF THE GROUND
Here are the essential steps to legitimising your business and turning it from an idea to a reality.
Pick A Business Name
When it comes to picking a business name, there are certain restrictions within the UK about what names you can and can’t use. These rules are mostly in place to prevent businesses from using names that are similar to the names of existing businesses, and therefore give a false impression that there is a correlation between them.
Familiarise yourself with the rules about choosing a business name here.
Trying to come up with a business name can be very time-consuming. One of the best things you can do is find an available domain name, and avoid the less obvious, top-level domains like .io, .jobs and .net, as they are less intuitive to search and therefore will be harder to find. Aim to get the most common domain extension for the country in which you’re going to operate, e.g. co.uk for the UK.
TIP: Shopify’s Business Name Generator Tool is designed to help you find business name ideas and provides information about which domains are available.
Network, Network, Network
Never underestimate the power of networking, even when you’re off-duty, as personal relationships are everything in recruitment.
Spend time getting to know your clients personally, and remember – you can start to gather clients at any time before your business officially opens its doors.
Take clients to lunch, invite them to golf, call them and say hi each week, and share information with them whenever you can. This may sound obvious, but the art of relationship building is slowly disappearing in many sectors of recruitment.
As your business grows and becomes more well known, your brand will begin to play a larger role in your business. As the business owner, you represent that brand.
Take the time during this initial phase to think about the values you want your business to portray and how you can use them to strive for market differentiation e.g. it may be that you believe happy candidates make the best employees so that is what you aim to achieve through every placement.
Is there a business motto you live by that you can instill into any future employees you hire?
Once you’ve come up with a brand persona, you can leverage it to promote your business and attract clients and candidates who share your values.
Create a Website
With any luck, you may know someone with web skills who can build a website for your business or can refer you to someone who can. It’s crucial that your website be mobile-friendly and have a user-friendly dashboard that puts key data front and centre.
If you feel confident enough to create your own website, here are 5 top website creation sites:
Ditch The Office Hardware
Printers, scanners and fax machines?
No, no and no!
None of these things are necessary when you start out (and in our opinion, ever). Going paperless and wireless is easier than you might think. The key tasks of your role as a recruitment business owner – connecting with people, promoting your business, reading resumes, making notes and collecting signatures – can all easily be done online through tools such as eSignature platform HelloSign.
That way, you can invest the money you save on clunky hardware right back into your business.
FACT: Gmail is the global email server of choice for most new business as it’s free, customisable and easy to set up.
More likely than not, you’ll start off working from home while you establish the business or maybe rent a shared office space with other businesses. In this instance, you can register the business address as your accountant’s address (with their permission and due notice, of course).
There are companies throughout the UK that run office management services which are particularly useful for startups during this initial period while operating as a one-man-band. Simple tasks such as taking and diverting calls can be outsourced to office management companies. The added benefit of these services is that they give a sense of legitimacy to a business by creating the illusion that a company is bigger than it really is.
Some examples of office management services in the UK include:
Setting Up Shop
Although it’s technically possible to operate from the middle of nowhere, you may not want to work somewhere that’s remote or too far away from where your candidates will be (see earlier point about the importance of networking).
Logic dictates that you should set your business up in an area where you’ll be in close proximity to your candidates and clients – it’ll be easier to make your presence known and win more business.
When considering how to finance a new staffing agency the first question is, how much of an investment are you able to make up front?
Commission or Flat Rate?
In the UK, recruitment agencies typically charge clients in one of two ways – either through commission – by taking a percentage of a candidate’s annual salary – or through a flat rate placement fee.
A commission-based structure works by charging a fee that’s dependant upon the candidate’s salary. As that salary increases, so too does the rate of commission (or percentage of income the recruitment agency takes). This rate is typically around the 10 – 20% mark, but can be higher for a role that commands a higher salary.
Commission is not a cheap option for candidates or clients, so a lot of new startup recruitment agencies opt to charge one-off flat rates while the business is still growing.
When you start out, don’t be afraid to experiment with your terms and do deals that make sense, rather than being rigid on the rules. Communicate with your clients and work out an arrangement that is financially viable for your new business. Talk to clients about fixed fee arrangements, retainers, exclusivity and so on. You’ll be surprised at the deals you can do if you are providing a higher level of personal service than your competitors.
Need Financial Support?
If you’re not in a position where you have the required cash up front, you’ll need to apply for a business loan, either with a bank or an independent provider.
You can also apply for a government grant, but they are hard to secure. See more information about applying for government-back support and finance here.
For a free quote on which business loans are suitable for your new recruitment business, try this business loan assessment tool.
TIP: Be wary of business startup companies that promise you the world in exchange for a hefty fee. Often the package deals they offer – creating a website, setting you up with an Account, printing business cards – can be done yourself or are unnecessary!