How much does a recruitment business set up cost?

How Much Does It Cost to Set up a Recruitment Business?

As my business specialises in setting up new recruitment businesses, you won’t be surprised to read the most common subjects I am questioned on are, “how do you set up a recruitment agency?” and “how much does it cost to set up a recruitment business?” 

The first question, ‘how to set up a recruitment business,’ I can answer. But ‘how much it costs to set up a recruitment business,’ is very much like asking how long is a piece of string! There are so many variables that it’s impossible to give a cost for every individual scenario. Every recruitment start-up is different, and your budget will be influenced by how much you can afford to, need to, and want to invest in getting the business going. Even how quickly you want your business to go live will have an impact on your costs.

For the first question on how to set up a recruitment business I have written a series of blogs, this series doesn’t cover in isolation the question of how much it costs to set up a recruitment agency, so that’s the reason for this blog. We’ll look at how you can plan for what you will need to raise before you start your own recruitment business and what you will need to sustain it over those first critical months.

Each new recruitment start up is different. Even if you work in the same sector as other recruitment agencies, you will have an individual business plan, different client and candidate attraction strategies and different ideas on how and when you want to scale and grow your recruitment business. But, before starting, there are some basic things you will need to plan for, like how much you’ll need to live off, what those initial outlays are, and how long it’ll take you to start getting cash to land. This initial analysis will give you some insight into how much it costs to set up a recruitment business.

Planning a Budget For Your Recruitment Start Up

Before you start looking at the cash flow, you need to know how much you’ll need from day one. Knowing what things you ideally need from day one will help you focus on how much money you will need to raise to fund your recruitment start up.

Before you create your first budget, you need to consider what you’ll need to start successfully — by setting your budget first, you risk falling into the trap of doing the set up on the cheap. This puts you at a huge disadvantage from day one, and it’s critical the business set up is done to ensure the highest possible chance of success for year one and, if possible, reduce too much financial burden on you in the first few months.

I suggest you set all costs with your preferred set up first and see where that takes you. You will, of course, look at the best deals you can get for each expenditure and think hard about those parts you don’t really need. But, don’t cut your budget too tight at this stage; the thing you really can’t afford is to fail!

Recruitment Start Up Costs and Expenditure

At this stage, you not only need to consider what those initial start up costs will be but also what the costs will be to sustain your new recruitment business over that tricky first six months.

You need to decide how much money you need to live off whilst you have no salary. You can’t live entirely like a hermit until the business takes off, so the first cost to add to your budget is your salary. To work this out, take your monthly outgoings, mortgage, loans, socialising and see exactly how much each month you need as a ‘salary’.

Next, list all the costs and expenditure for the first six months. The vast majority of start-ups get their first cash into the business before that six month mark, but your sector may differ (which we’ll come to). But, whatever industry your recruitment business covers, your total set up costs will fall into two categories:-

  1. Set up costs to get to day one of trading – website, company registration, database etc.

  2. Ongoing costs – ‘salary,’  trading expenses like website search engine optimisation, mobile phone bill, travel costs.

In month one, add all the set up costs and the monthly costs for that month. Then for each month after, add only the costs you would incur in each month. I suggest using a spreadsheet, it’s much easier to adjust the figures and use the automated sum facility. For an annual cost like accountancy, divide it by twelve and add that figure to each month.

So your set up list might look like this:

  • Website
  • Logo art work and business cards
  • PC and printer
  • Office software package e.g. Microsoft Office
  • Company registration and articles of association
  • Partnership agreement, shareholders documents & certificates and other legal papers you’ll need if you’re in a partnership or have shareholder(s). For a business bank account, banks now ask for these.
  • Domain name purchase
  • Company insurances, public liability, professional indemnity etc.
  • Mobile phone purchase
  • Virtual office(s) phone number purchase
  • Accounts software

There will be more than this, but it’s an example to start with.

And your monthly costs projection might look like this. Again this is a suggested start, but I’d suspect more in your completed plan.

  • Salary
  • Job boards
  • Travel
  • Monthly phone cost; mobile, landline, presence number costs
  • IT support
  • Recruitment database, i.e. CRM or ATS
  • Website hosting
  • Website search engine optimisation
  • Client and candidate entertainment
  • Broadband
  • Office space (if you don’t want to, or can’t, work from home at the start)
  • Accountancy annual costs divided by twelve (if you negotiate a fixed first year cost)

If you’re planning to staff up by adding a support person, Resourcer and/ or 360 Recruiter, then these additional business costs need including. Remember to factor in all the associated costs, like extra database licence and job board licences as well as salaries. With salaries, you will need to pay PAYE, your accountant can tell you how much this would be. However, I’d wait until you add your sales forecast as this will influence your decision on when the business will have the cash flow to take on staff.

Your business plan will also influence some of these costs. You may want to refer back to my blog on the most common recruitment start up mistakes to help you avoid some of these in your plan. As an example, many start up recruiters can spend too much on an ego-satisfying, over the top, expensive website. If you’re not going to budget for SEO or Google paid adverts to attract new customer traffic to the site, then this could be money wasted. Also, try wherever possible to build the business in the fashion of the company you plan to be, it’ll help you get there faster and a lot easier when you get there.

So, as you can see the “how much does it cost to set up a recruitment company?” question takes work to personalise for each individual recruitment start up.

Raising Funds When Setting Up a Recruitment Business

Once you’ve completed the set up and six months costs plan, add the two together and you’ll have your answer to how much you will need to set up your own recruitment business. This figure may scare you or put you off, however, don’t let it.

I recommend you then go straight onto setting up a cash flow plan in my next blog rather than start working on how to get your recruitment start up capital together. In most recruitment businesses, you would expect to make placements in your first six months and start getting cash into the business, and if this is the case then your start up cash figure should go down. However, don’t forget, the money won’t come in the month you make the placement – remember to allow time for the person to start and the invoice to go out and get paid. As it’s rare that a client pays the day they get the invoice, my blog on cash flow is essential reading.

How to raise funds for a recruitment start-up is also another blog in this series, but don’t think the only route is to raise all the money yourself –  there are other options. You can borrow money, attract an investor or find a business partner (silent or not).

However, I would think very carefully about giving away any of your business at this stage. A business partner split further down the line can be harder than a divorce. Check out my blog A Recruitment Business Partner Is For Life, Choose Carefully! which explains why this route needs thoroughly thinking through.

So, How Much Money Does It Cost to Start a Recruitment Agency?

If you are looking at how to start a recruitment business and want to know how much it costs, it’s clear to see that there is no easy answer to this question. The money you need to start up will depend entirely on your individual business, its business plan, growth strategy and even your own personal circumstances and needs. It comes back to the question how to set up a recruitment agency, and as you’ll have gathered by now, it depends how you want to do it.

I make no apologies if you think this blog in the series seems a little basic. It’s too easy to fall into lots of ifs, buts and maybes in a start up plan. Yes, you need to think of worst-case scenarios in a cash plan, but if I went into detail on how much to spend on SEO and what return you could expect, or the value of an initial big advertising budget etc it could easily start to make the whole exercise a lot more complicated than it needs to be. I will touch on some of these subjects later but for now let’s keep it simple.

My next blog is on how to calculate cash flow in a recruitment business, and on which parts of your start-up costs to keep low and which of those will return quick wins if you invest a little more, so keep your eye out for that one. However, if you are itching to set your recruitment business up now and want to know more about how to set up a recruitment business, feel free to contact me directly on LinkedIn and if I can help I will.

Rhys Jones
Written by Rhys Jones Managing Director – Davidson Gray

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