Funding a start up recruitment agency

It this is you, and you haven't actually done it, one of the most likely reasons why you haven't is a lack of funds to set it up.

It is, of course, far more complicated than that. You need to be prepared to take risks and unsettle what may be a relatively secure and settled lifestyle for you and your family. You need to consider whether running your own business will suit you, and there are countless publications on the internet to help you do this. This article is not to help you decide whether or not you should go ahead and set up your own recruitment agency, it's to give you some ideas as to how you could fund those initial days once you have decided to take the plunge.

Just to be clear, this will be more an account of my own experience, rather than researched advice. Ultimately, you need to make you own decisions about what and what isn't a reasonable way to raise funds. However, a few sound bites from my early days may just give you some ideas.

Firstly, lets just apply some hard logic before you decide how much money you are prepared to gamble here. You need to be confident you can be successful as a recruitment consultant on your own. That means being confident you can generate vacancies without your current companies brand name behind you, confident you know where and how to advertise, and confident you know how to pick the best candidates. Assuming you are already a consultant, this shouldn't be too much of a problem. If you know you can already do the job, providing you allow yourself enough funds to continue to do the job properly, you will be profitable after a period of getting things going. Therefore, the key to success is to ensure you have enough finds to do the job properly to the point of operational profit.

Forgive the bold text, but the vast majority of new business fail, not because they can't do it, or their idea was bad, but because they didn't set up with enough funds to do it properly.

To give you a common recruitment example, I now run a major recruitment jobs board. We are frequently approached by new start ups, whose plan is to only use free advertising channels until they are established. Just think about this for a minute. They are entering and established market, with many competing well know companies, all spending thousands a month on advertising, and expecting to compete with an unknown brand, with no advertising budget? A class faux pas. They will end up failing, not because they don;t know how to do it, but because they haven't done it properly.

When you set up, you need to decide what the costs are to do it properly. This needs to include a reasonable amount for advertising and indeed a reasonable amount to pay yourself. Start with the concept of doing it properly first, then work out what that will cost afterwards. You need to work out a figure to the point where you believe you will be operationally profitable (ie. your making more than you're spending each month.) Don't cut if fine, be pessimistic with your forecasts and give yourself a couple of extra months spare. My guess is, you need 'at least 6' months full operating costs in the to get bank to get going. By the time you've advertised you first vacancies, they'll be delays to placements and then again to collect money. I've seen people make their first payments quickly, but they've cut it so fine that they've had to fold before they were able to collect the money.

I'm guessing that by now, you're reading this thinking that's far more money than I expected, I have, or can get my hands on! Don't give up just yet. Remember, if you get this right, and you're good,you're going to earn far more money working for yourself than you ever have when employed, and indeed ever would employed.

So How did I start. Well I have to put my hand up and say, “with far too little money for comfort”. My first gambit was to visit my bank and enquire about a business loan. This was not a great experience as they require a full business plan to assess your chances of success before they would loan you money. In my case, I found myself trying to justify my business idea and abilities to a young man who was not qualified in anyway to asses them. It was more trouble than it was worth. That said, it's a worthwhile exercise to have to prepare a business plan, and present to someone to convince someone it will work. Each time you do it, your ideas will evolve.

The next alternative is an 'unsecured' loan. An unsecured loan is normally made upon the security of your employment without the need to put your house up against it. In my case, the largest I could achieve was £15000. with no savings and forecasting costs of £7000 per month this was going to be highly risky, I needed more.

I got around the problem in 2 ways. Firstly, I had a 3 month notice period. Whether I was put on garden leave, or not, this would be a time where I could make a good start to the business alongside my job with a full salary and company car. If you have a notice period of one month plus, this can be an excellent way to get a flyer while being paid. Tasks such as building websites, creating stationary, setting up your office and the initial approaches to scoop vacancies can all be done within a notice period. You should plan very carefully how much can be achieved while still working, you'll be surprised how far you can get. This will all shorten the period during which you will receive little or no income before your new machine warms up.

My second trick I wouldn't advise. I collected 4 credit cards on the basis of my employment, each with and interest free period, and an £8000 limit. I bought my car and all my initial equipment, computer, desk etc on these cards. I proceeded to move the borrowing between cards for the first 18 months to maintain 0% interest at the end of which I used income to pay it off.

I budgeted for aggressive advertising form the word go. I new I could get vacancies, as long as I could find candidates it would work, and this paid off. I collected vacancies during my notice period, set up advertising in my last week of work to start straight away and off we went. As things progressed I made placements and gradually built the bank up. Just to give you an idea, during that first year I reached a balance of £250 left!! with outgoings of £7000 per month. Even though money was due in, you can't count on it until you can see it on your statement. Placements and money collection monthly was erratic, but evened out over 6 months.

Looking back now 6 years on, my £15000 just wasn't enough, even with my 3 months notice and the credit cards. Really I needed a good £40000 or more get going comfortably. At the time, this would have seemed a daft amount of money, but really wasn't. Given enough time, the business was always going to work. My £15000 loan cost £242 per month over 8 years. To raise £40000 would have cost me an extra £400 per month at the most, nothing in amongst £7000 per month of costs. But, this extra money could have prevented me going bust, just because I hadn't allowed enough finds to operate well enough, for long enough to cut free.

So how could I have raised the extra money. Well if I had raised it against my house, I would have got it back in appreciation within 2 years. Worst case scenario, I'm back to work with an extra £40K on my mortgage, not great, but your not going to win any great prizes without some degree of risk.

There are other routes of funding to consider. You could get others to invest in your business in return for a share. Maybe your family know you're good and would hope for a better return from you than their local bank. You could even try business angels (successful business people looking to invest). Personally, this defeats the object, once you give away a share of your business you will end up accountable to others again (remember employment!).

In summary, you need to think long and hard about whether you have the ability, the desire, and characteristics to set up your own business. If you get this far, and still decide to go ahead, decide how to do it properly first, then work out what it will cost afterwards and raise the right amount of money. If you are good enough to make it work, you'll get it all back, and more!

good luck.