M & A valuation Series: Starting your own Recruitment Agency
It is well known that the recruitment industry has very low barriers to entry which seems to encourage a large number of new businesses to start-up each year.
What drives people to take the plunge into a new business varies immensely. Some have a driving desire to build a business themselves, do it better, faster or cheaper; others end up there because of circumstances. Few can look back and say they understood what they were really getting into.
There is no doubt commencing a recruitment business in Australia or New Zealand can be both personally and financially rewarding ventures for a lot of people. Some have failed, but many have developed successful businesses that deserve the recognition they receive.
This article poses some questions that need to be considered before taking the leap into new business ownership.
It is Personal
A start-up business is an intense and personal affair that will teach a budding entrepreneur much about themselves. Before commencing, a person should really understand their own strengths and weaknesses in a clear and unemotional manner. You should know what skills you don't (and probably will never) have.
Outsource those things that aren't your specialty and use that time to go and get some new business! You are not saving money by doing it all yourself, you are wasting time, energy and letting the business run you. Hopefully your business partners and/or professional support network will complement your capabilities and experience; you should surround yourself with the right support.
A start-up business also needs to reduce as many risks as possible and new owners need to have their personal financial affairs in place so that surviving on low drawings is possible if the business performance does not match the financial plans.
Related: Valuing a Corporate Recruitment Agency
Most new businesses won't succeed without hard work, belief, passion and undying energy from the founders. They require significant time commitment and those owners that have a lot of outside commitments can often find their time to be conflicted.
Genuine motivation
We are often surprised by the lack of vision or the lack of a burning passion in start-up companies. "I can keep all my billings", or "I can convince my old client to work directly through me", does not provide an environment that will sustain a business in the dark times or motivate employees to join you.
Do you have a vision for what you are hoping to achieve? What is your business going to stand for? Do you have a business model that meets your target client's requirements? If you can't answer these questions maybe more thought is required.
Developing a strategy that incorporates clients, candidates, staff, service offerings, delivery mechanisms and financial requirements takes research and time. And the strategy you develop needs to fit with your personal goals and circumstances.
Execution
Commencing a new business is not just about repeating what you learned from your last job, but is often about building something unique that builds on your past experiences and reflects your vision - and importantly - your true values.
Some critical points to consider include:
- Understanding scale and rightsizing - the vital key to a well-run sustainable business is scalable, repeatable systems. Every activity that occurs more than once in your business needs a process so it gets performed exactly the same way, every single time. This consistency means that you can handle extra volumes in the most efficient way, and that the customer gets the same experience (hopefully a great one!), every time they do business with you.
- Building products and services that are matched to clearly defined target clients
- Understanding strategic v opportunistic business opportunities.
- Establishing a remuneration model that rewards the culture you are seeking to build. Your staff are your largest expense so the remuneration model needs to reward the company before it rewards staff, not the other way around.
- Establishing legal documents that protect you with staff, candidates and clients.
- Choosing technology platforms that will grow with you in the medium term, not just chosen because you have used them in a past job.
- Consciously developing a brand that accurately reflects your business and assists your marketing and sales initiatives.
Cashflow
Most importantly, small businesses are about good cashflow management. You may not be an accountant, but you must have an overwhelming interest in the numbers side of your business. You don't have to create the reports - outsource by all means - but you definitely need to look at your cashflow, budget and profit and loss on a monthly basis. And if you don't know what it all means, get your bookkeeper to sit with you each month and explain your financial position. Getting this right requires some disciplined procedures and is aided by a strong understanding of risk.
Being a business owner is not for everyone, but the recruitment industry provides a wonderful platform and environment to test if this is your calling. Do your homework, manage your ego, learn to listen, don't bite off more than you can chew and enjoy the experience.
An earlier version of this article was written with Nigel Harse and published in "Recruitment Extra".
HHMC Global provides advisory services to the recruitment and staffing industry and is best known for its work on M&A transactions. HHMC is based in Australia and works with clients globally. To discuss your business future contact Rod Hore or Richard Hayward.
