The Recruiters Toolkit -The Outsauce View


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The myths, half-truths and pitfalls of setting up a recruitment agency.
Ten practical strategies and insights for start-up and growing businesses.

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The Recruiters Toolkit -The Outsauce View

  1. 1. The Outsauce viewRecruiters’ toolkitThe myths, half-truths and pitfalls of settingup a recruitment agency.Ten practical strategies and insights forstart-up and growing businesses.
  2. 2. Introduction It’s a challenging market out there, for sure. But if you’re reading this it means you haven’t been put off. You’ll know there are opportunities for the taking; you may even have some clients lined up already — it’s likely you’re an experienced recruitment professional or a seasoned operator in your field. Or an entrepreneur who’s identified a gap in the market. Maybe you’re well on your way and are looking for tips to achieve growth. Perhaps you’re looking to launch your own recruitment business and you would like some advice on how to get started. You have faith in your abilities; you’re either ready to make the leap and go it alone or to scale up and really grow your business. The only thing holding you back is preparation and a touch of apprehension. The purpose of this toolkit is to provide practical guidance to help you achieve your goals, while clearing up some of the myths around starting up in the recruitment industry. We’ll cover all the main considerations and point you in the right direction for further assistance — because running your own business doesn’t mean you have to do it alone.Recruiters toolkit. Introduction 01
  3. 3. Myth or truth? Thinking 1. Setting up a recruitment agency is expensive ............ pg 04 . 2. There’s personal financial risk involved ........................ pg 07 3. It’s difficult to get funding .............................................. pg 08 4. It’s not a good time to be setting up ............................. pg 10 5. The first few years are the hardest ............................... pg 11 . Starting 6. The administration required to start up and run a recruitment business is complicated and time consuming .................................................................. pg 14 7. here are too many pitfalls to T remaining compliant ......................................................... pg 16 Growing 8. The market is volatile ....................................................... pg 19 . 9. here are few opportunities to boost your profit T margin as you grow ........................................................... pg 20 10. eferral to an umbrella company will mean exposing R contractors and clients to dubious practices ................ pg 22
  4. 4. Thinking What I know now... that I wish I knew then... Q. What advice would you give yourself if you were setting up now? Very simple. Do it right and take your time. What I mean by this is that quick success can sometimes make you become complacent and you forget why you were successful in the first place. CRS rapidly increased revenue and profits over a two year period and naturally wanted to continue its growth. If I could go back in time I would be much more cynical about how and when we decided to grow. Growth is fantastic, but sometimes you can lose sight of all of the important things which made you successful just to achieve a growth target. The realisation of this has provided me with much more focus in how I grow the business rather than growth for growth’s sake. Ambition is a powerful ally, greed can be an equally powerful enemy. Gary Janes, Channel Recruitment Consider what you want from your business and how you want it to balance with all aspects of your life. Keep your goals in mind at all times. It’s easy to get greedy and work all hours, but for me, it’s about enjoying what I do, getting great satisfaction out of having a business to call my own, but still having plenty of time to spend with my children. Ashley Percival-Smith, Norse RecruitmentRecruiters toolkit. Thinking 03
  5. 5. 1. etting up a recruitment S agency is expensive MYTHThe must havesThe upfront costs for setting up an agency are actually quite modest.When going it alone, you have the advantage of being as lean as possible. You won’tneed an office to start with — just a room at home with the essentials: a laptop, a phoneand your contacts. Or a coffee shop with free wi-fi.You will need funding though, which we’ll discuss in section 3.InsuranceThe benefit of only requiring a few assets means youwon’t need to worry about different types of insurance— but you will need to investigate liability insurance. Insider tipIn most instances employers’ liability insurance is Outsauce partners with Caunce O’Hara,compulsory for businesses with employees. Bear this in specialists in liability insurance formind if you are going to make temporary placements in recruitment businesses.particular. If you place temps via an umbrella companyhowever, this liability is removed as they effectively Go to the umbrella’s employees. services/value-added-services/Professional indemnity insurance meanwhile will help to for-recruitersprotect from any claims made against your business forthe services you provide.When starting out, the most important thing is tounderstand exactly what insurance you need and whatis optional. You can then scour the market for the bestpolicies for you.*ContractsYour requirements for contracts will vary depending on the exact nature of yourbusiness and the sectors for which you recruit. The 2003 Conduct Regulationsrequire formal contract terms to be agreed with all clients and temporary candidates,including contractors. If you’re already working in recruitment, think about the contractsyou use now. Discuss with your solicitor and look for discounts on bulk purchases.Trade bodies, including the Association of Professional Staffing Companies (APSCo),TEAM (a network of UK independent recruitment experts), the Association of LabourProviders (ALP) and the Recruitment and Employment Confederation (REC) may alsobe able to assist you in this area.Recruiters toolkit. Thinking 04
  6. 6. Are you planning on recruiting for tempor perm staff?Temps and perm staff bring different financial and logistical implications foryour business.With permanent placements, you can take your fee and move on to the next job— so you don’t need to worry about payroll so much as maintaining a healthy pipelineof new placements.Temps need to be paid every week — and in most cases you will be paying them beforeyou receive the money from your client. Deductions for tax and National Insurance (NI),as well as holiday pay obligations will also complicate matters. Employers’ NI is anadditional cost to your agency.And of course, there will be timesheets to manage.You will need to balance the administration and compliance burden with time dedicatedto business development.In all cases: cash flow is critical.How strong are your existing relationships with your clients and are they good payers?If you’re just starting up, do you have any warm prospects that could be quickly convertedto fee paying customers? Whether recruiting temps or perms, consider how much workyou can expect to put through your business in the first few months — and factor indelays around placements and payments. Securing a steady income is a priority for yourfledging agency so be realistic about how, and where the money will come from in theearly days.Fortunately, there are options available to agencies to overcome this hurdle, includinginvoice financing. A good financing provider will cover up to 100% of your temp payroll,could also cover your perm billing and invoice your clients on your behalf, meaning thatyou get your money before your client pays. (See page 09 for more on this).Your accountant can provide useful financial guidance to streamline your workload— while an umbrella service, if your temps are registered with one, will remove NIcontributions and holiday pay burdens.Recruiters toolkit. Thinking 05
  7. 7. Marketing your recruitment agencyYour mindset will ultimately decide the success of your marketing efforts. Do you viewmarketing as a cost or strategic investment? If you consider it a strategic investment thenyou need to plan around two key numbers:1. Average client lifetime value2. Average client acquisition costOr to put it another way: How much is a client worth to you?How much are you prepared to pay to get one?The same model can also be applied to candidates. If you establish an acquisition costmodel that you are comfortable with, you can then start to test and evaluate the plethoraof marketing channels available.Digital marketing is the most tangible investment because everything can be measured.But that doesn’t mean you have to restrict your efforts to just the most measurableactivity. It’s important not to confuse cost efficiency with effectiveness. An email blastto a cold database may be very cost efficient, but how much more effective and impactfulcould a physical mailing be?The catalyst for growth for many recruitment businesses has been a strategic focuson becoming a voice of authority in a specific market sector. Build relationships withkey journalists by becoming a useful and interesting source of information and opinion.Social media represents the greatest opportunity for a ‘free’ marketing investmentas it only requires your time. But make sure you are disciplined enough to focus on being‘productive’ rather than just ‘busy’ on social media platforms. Like traditional networkingthere are always hidden opportunity costs to activities that just involve time. Only aftera sustained effort can you make an accurate judgement call on the effort:rewardratios involved.Thanks to the cloud, smaller recruitment agencies can compete against large corporatesthrough low rent marketing technology platforms for CRM, email etc.One early investment that will only reap intangible returns is your brand identity.But it is a key investment. Having the ability to build great client relationships meansnothing, if prospective clients won’t contact you if they cannot see beyond a cheapwebsite, logo, copy style etc.As a service provider you are essentially ‘selling the invisible’. A professional brandidentity will reduce the perceived risk of working with you and subconsciously giveyou a confidence boost.Recruiters toolkit. Thinking 06
  8. 8. 2. here’s personal financial T risk involved PARTLY TRUERisk is an inevitable component of any business venture— it’s the price of opportunity. How you manage risk ismore important than the risk itself.When starting a new agency, it’s likely you’ll be putting up some of the money yourself.Self-finance gives you control, but you’ll probably need to raise additional funds to coveryour investments.You must ensure you have enough money set aside to pay yourself and cover your debts.Borrow wisely and understand the benefits and limitations of each method. For instance,credit cards provide easily accessible short-term cash — but are expensive in the long-term. Paying interest on inflexible loans can eat away at your finances. While a mortgageor a second mortgage puts extra pressure on your household.Also, be wary of signing a personal guarantee… A personal guarantee is a common wayto secure a loan for start-up businesses without a credit record. A director, who is alsoa shareholder of the company, agrees to be liable for a certain amount plus interest,including any costs and expenses.Personal guarantees are quite easy to secure but are difficult to get out of and shouldnot be entered into lightly. On the plus side, they allow new companies to borrow moneyrelatively easily and are only enforced if payments stop. But should the company defaulton its debt, the lender may seek the money from the guarantor. If he/ she is unable topay, the lender may seek a bankruptcy order.Explore all your options before committing to a personal guarantee — and alwaysget your liability in writing.Benefits of applying for funding througha reputable financing companyFor the day-to-day funding requirements of a recruitment agency, support froma financing company can make all the difference.A respected financing business will work with you to reduce your risk, managingimportant processes including:• Applying for credit insurance to protect you against bad debt• Credit control• Chasing payment of your invoices to clients• Making monthly returns required under the bad debt protection policy• Paying PAYE/NIC direct to HMRC• Supporting maintenance of a healthy cash flow.Helping you to get from timesheet submission to cash as quickly as possible.Recruiters toolkit. Thinking 07
  9. 9. 3. t’s difficult to get funding I MYTHGiven the current economy, you’d be forgiven for thinkingmoney is hard to come by. However, there will always beopportunities for promising businesses.Firstly, you’ll need a business plan. Banks won’t lend to youwithout one — and it’s a good idea to have one anyway!If you know your industry you should have a head start, but the key things toremember are:• prepared. There aren’t too many overheads for the new recruitment agency, Be but costs can accumulate. As long as you plan ahead they won’t creep up on you.• pragmatic. The only thing worse than not being able to raise any money at all is Be not raising enough. The last thing you want is to embark on a new venture, with all your skills in place and opportunities in the pipeline, then run out of money halfway through your first year. If you have other shareholders it’s better to be pessimistic in your budget projections to give yourself some slack.• Assess what it will take to achieve your goals, then calculate what it will cost. Seek efficiencies but don’t economise on your ability to do the job properly. Raising six months’ upfront costs is a good rule of thumb. (And remember you need to pay yourself a living wage.)Let’s take a look at the self-financing options available to you,including an overview of the benefits and drawbacks for each:Savings (unsurprisingly) Borrowing on credit cards• Limit your risk using other sources as well… • Quick cash and no questions, but not a cheap long-term optionBank loan• personal guarantee is a big commitment but will A Getting a mortgage (or a second mortgage) enable you to get more funding for your start-up • Always approach with caution, but a ready source of capital neverthelessOverdrafts• Not great for lump sums but useful to aid with cashflow Borrowing privately • good option if you have supportive family/friends. AAn unsecured loan Private investors will want to see a return, though• Relatively easy to obtain, but difficult to get a large sum. — selling a share in your business could seem like a Definitely worth investigating to add into the mix good idea until that share becomes more valuableCommercial lenders — such as insurance Equity split with a partnercompanies and building societies • Half the funding — but you’ll need twice the spoils• Potential for lower interest rates and less restrictive, to share the same victory as going it alone but subject to fewer regulations than banks — and you might have to provide some security Selling possessions or assets • You could always buy them again when your business takes off…Recruiters toolkit. Thinking 08
  10. 10. Options for temp recruitmentFactoring and invoice discountingIn simple terms, factoring and other forms of invoice finance allow recruitment agenciesto get ‘paid’ earlier. In factoring, a recruitment agency can sell its invoices to a factoringcompany at a discount, before the end-customer has paid. This means that for a relativelymodest fee, agencies can get a reliable cash flow and do not have to worry aboutchasing invoices.Invoice discounting is effectively borrowing against unpaid invoices. The end resultsare similar to factoring although invoice discounting is closer to ‘pure’ lending as,unlike a factoring facility, you retain responsibility for chasing payment and managingthe sales ledger.For many temp agencies, factoring/invoice discounting are essential tools. The key is tochoose carefully:Questions to ask your financing provider• Can they adapt to your changing needs? Do they provide back office support in addition to funding?• your business grows, how well placed are they to grow with you? Can their services As scale from pay and bill right through to invoice discounting as you bring some of your financial support functions in house?• What is their experience in the recruitment sector? Do they understand the cashflow characteristics of employment businesses?• Can they scale up and down with you, according to the changes and seasonality of business flowing through your agency?• they understand the compliance issues within the recruitment industry that can Do impact on your finances?Benefits of choosing aspecialist vs. generalistThere are many financing providers out there withapparently similar products. The trick is to find one thatreally knows the industry and how to help your business Did you know?handle the unique challenges of the recruitment sector. With Outsauce, funding can beA specialist should understand your requirements and combined with a full suite of financingwork in partnership with you, from start-up and beyond. services including credit control andThey should have a genuine empathy and where possible, sales ledger administration.first-hand experience of your challenges. Specialistsunderstand the unpredictable nature of the recruitment With up to 100% funding for temporaryindustry and will be more inclined to finance phoenix invoices, all your temps are paid on time andbusinesses — they are aware of the pressures on in full. No need to worry about a shortfall.recruitment industries so there’s no reason not to be No need to dip into your overdraft.confident you’ll get funding again next time round. We also provide financing for permGeneralists have their place, but they are not ideal invoices as part of a combined offeringfor recruitment agencies. Many are unlikely to have or on a stand-alone basis.the insight or inclination to handle all the nuances of Want to know more?collecting temporary and permanent placement invoices. 0330 100 8686Recruiters toolkit. Thinking 09
  11. 11. 4. t’s not a good time to I be setting up YOUR CALLThe economy is poor. A bad debt can mean the differencebetween success and failure. But fortune favours the brave.In a depressed economy the leaner and nimbler operationsoften thrive.Whether it’s a good time or not to set up depends on your attitude to risk— and how you plan for any problems:• Spread your risk with several contracts• Plan ahead — what would happen if you suddenly lost 50% of your turnover?• Consider carefully the sectors you are considering specialising in. Is there any opportunity to test the water in other sectors and spread your risk by diversifying?• Think carefully about when to take on staff — which business functions could you outsource to avoid additional overheads?The recruitment industry has consistently demonstrated its resilience in tough times.The most recent Annual Trends Survey from the REC last year showed that recruitmenthad bounced by 25% to just under £25billion.And it’s on the rise. The medium term forecast for the industry is single digit growth overthe next four years with the industry peaking at over £30 billion in 2014/15.Recruiters toolkit. Thinking 10
  12. 12. 5. he first few years T are the hardest TRUERunning your own business is not a hands-off pursuit. There’s nogetting around the fact that in order to succeed, you will have tobe committed — and that means late nights, weekend workingand precious few holidays in the first years. Unless you’ve set upin partnership, sanity breaks may be hard to come by.However, it’s not a life sentence. As you develop the business you will be able to increaseyour resources, expand your workforce and free up some time for RR.A recommended piece of bedtime reading is ‘The E-Myth Revisited’ by Michael Gerber.This is considered a bible for small business strategy and management. The core E-Mythprinciple is that successful business owners need to work ‘on’ their business rather than‘in’ their business. Sage advice indeed.Outsourcing your payroll is one of the key strategies available to ensure your timeis focused on the most productive areas of your business.It can also mean of course that your workers still get paid if you take time out. But inreality you’ll still have to ensure timesheets are submitted, answer queries and handlenew business enquiries year-round. It’s the nature of the beast. Did you know? While most accountants can keep your books in shape and accurate, they can’t tailor their advice to the unique nuances of the recruitment industry. With Outsauce, expertise is available to advise you on everything from your bottom line to your business plan. Want to know more? 0330 100 8686Recruiters toolkit. Thinking 11
  13. 13. Where can you get help?What are the key steps in setting up an employment business?What should you organise yourself — and where can you ask for help? Registering your business DIY Registering for tax DIY Self-assessment DIY National Insurance Consider outsourcing Holiday Pay/ Statutory Sick Pay Consider outsourcing Insurance DIY Funding Outsource to a specialist finance provider Contracts with clients and candidates Outsource to your solicitor Ensuring compliance Consider outsourcing Paying your workers Outsource to a specialist finance provider While most of the items covered here can be handled by you, as part of our broad service we can look after them on your behalf. Contact Outsauce now to arrange a free, no obligation meeting with one of our advisers 0330 100 8686 www.outsauce.netRecruiters toolkit. Thinking 12
  14. 14. Starting What I know now... that I wish I knew then... Q. What was the biggest challenge you faced when setting up? Getting a new brand recognised and off the ground is tough. Many clients are set in their ways or have long standing relationships and nudging onto PSLs with an unknown business is difficult. This is where dogged determination comes into its own. You just have to keep at it and you will get your break. And once you’ve got one contract and can prove your service quality, more follow. Ashley Percival-Smith, Norse Recruitment You will have bad days running a new organisation but it’s important you convert those bad days into good weeks. Simon Noakes, Bespoke RecruitmentRecruiters toolkit. Starting 13
  15. 15. 6. he administration required to T start up and run a recruitment business is complicated and time consuming PARTLY TRUEIt’s true; there is a lot of paperwork involved when settingup your business. However, it needn’t be overly complicated,provided you get the right guidance and specialist assistancewhere required. You can even outsource a lot of the moretechnical aspects to your accountant or solicitor.When setting up, there are many options available. For instance, you can become a soletrader, enter into a partnership or become a limited liability company. Which one youchoose will depend on you — it’s a good idea to take advice from a specialist to make sureyou are choosing the most tax efficient and compliant solution for your business. If you are planning on going down the self-employment route, you will need to inform HMRC. This will mean you are responsible for tax self-assessment, Class 2 National Insurance and PAYE if you have people working for you. Click here to find out more: To become a limited company, you must register at Companies House. It’s cheaper to do this online and the process can take just 48 hours. Visit the Companies House website for more information: You will need to register for VAT if your sales total more than £77,000 for the last 12 months. This page has some useful information to find out when and how much you have to pay: Why battle the admin? Outsauce Accounting can provide assistance with all of the administration required in starting up. Want to know more? 0330 100 8686Recruiters toolkit. Starting 14
  16. 16. Legislation governing employment agenciesAs well as the general legislation which applies to all businesses, both temp and permagencies are subject to specific requirements under law, including:• Never charging workers fees in exchange for finding them a job (this doesn’t apply to performers or other workers in the entertainment field, or workers who are themselves, set up as companies)• Getting adequate information on the job requirements and the work-seeker’s eligibility for the role• Obtaining written consent from a parent or guardian when taking on under 18s• Ensuring workers have all the necessary qualifications required by law (including a criminal record check if required)• Paying workers if they are employed by the agency, regardless of whether the agency has been paid by the hirer (again, there are exceptions in the entertainment and modelling sectors)• Providing workers with full details of all chargeable services, including right to cancel and notice periods• Ensuring migrant workers have the right to work in the country.You can outsource paying your workers (including NI contributions and holiday pay) butthe rest is your responsibility. In 2013 this will also mean being on top of your AWR andpensions auto-enrolment responsibilities.*Record keeping…To prove compliance, you have to record everything. Tips for negotiating aAgencies must demonstrate they have followed the business lease:Employment Agencies Act 1973 and Conduct Regulations2003 legislation. You’ll need to keep details pertaining to • equest a rent-free period to help your Rapplications, hirers and your dealings with other agencies. cash flowAgencies must be able to supply this information for up • nquire after quarterly rent payments rather Eto one year after creation and within two business days of than monthlybeing requested. (Modelling and entertainment agencieshave to keep records for a minimum of six years.) • et flexibility by requesting a break clause G (right to end lease early)…keeping up with the rest of • ear in mind Stamp Duty Land Tax — this is B a complex calculation so seek assistancethe paperwork • et a schedule of condition so you don’t have GOf course, record keeping must be completed alongside to foot the bill for any repairsday-to-day administration: payroll, sales ledger, purchase • on’t pay the landlord’s legal costs Dledger etc. It can be time consuming and there is alwaysthe risk you will take your eye off placing people and • you have a limited company, ask for the Ifbuilding relationships — or perhaps go the other way and lease to be put in its name to limit yourmake a crucial slip in the paperwork. liabilities (Offer rent deposit, rather than directors guarantee)You might consider outsourcing various aspects of backoffice administration to an outsourcing business so youcan focus on developing your business.*Read more about AWR and auto-enrolment in 2013 withour Guides available at toolkit. Starting 15
  17. 17. 7. here are too many pitfalls T to remaining compliant PARTLY TRUEThere are numerous legal requirements facing recruitmentagencies. Achieving compliance is not necessarily difficult,but it demands a good working understanding of the law andcan be time consuming.Recruitment agencies are covered by both general legislation governing businessesas well as legislation pertaining specifically to recruitment.For businesses, these include employment and tax law, immigration law, EU regulations,VAT, PAYE and NI.The government provides a quick check list for businesseswith employees (this includes contractors at temp agencies).So, if you have employees, you must give them:• written statement of employment or contract a• the statutory minimum level of paid holiday• payslip showing all deductions, e.g. National Insurance Contributions (NICs) a• the statutory minimum length of rest breaks• Statutory Sick Pay (SSP)• maternity, paternity and adoption pay and leave.You must also:• make sure employees don’t work longer than the maximum allowed• pay employees at least the minimum wage• have employer’s liability insurance• provide a safe and secure working environment• register with HM Revenue and Customs to deal with payroll, tax and NICs• consider flexible working requests• avoid discrimination in the workplace• make reasonable adjustments to your business premises if your employee is disabled.Source: toolkit. Starting 16
  18. 18. Obligations specific to recruitment agenciesIf you operate a temp agency, some responsibilities fall to the client who is hiring yourworkers and the rest to you.The client pays you, including the sum for your employees’ NICs and SSP. It is yourresponsibility to pay your workers.Temp agencies are responsible for ensuring their workers receive their rights underworking time regulations. The client remains responsible for their health and safety.In accordance with AWR, after 12 weeks’ continuous employment, agency workers getthe same rights as permanent employees in most respects. These include: pay, workingtime, rest periods, night work, breaks, annual leave and maternity, paternityor adoption leave.The client must provide you with information on the relevant terms and conditionsbut it is your responsibility to ensure that your worker receives these rights.Additional informationThere is a great deal of information available on all of these topics:The new website is a good place to start.For instance, if you are employing migrant workers, view this section on ensuringyour employees are eligible to work in this country: Employment Agency Inspectorate (EAS) is a government body that works withagencies, employers and workers to ensure compliance with employment rights.For useful links to advice and legalisation, visit: above sources are useful, however, due to the complexities involved, it is alwaysadvisable to seek advice from a specialist to ensure you are fully compliant.Contact Outsauce now to arrange a free,no obligation meeting with one of our advisers0330 100 8686ask@outsauce.netwww.outsauce.netRecruiters toolkit. Starting 17
  19. 19. Growing What I know now... that I wish I knew then... Q. What’s the best decision you ever made as your business began to grow? Don’t waste money on things you really don’t need. Keep costs low, it sounds simple, but costs can run away from you if you don’t keep an eye on things. Giles Casson, Encon Q. What lessons have you learned along the way? People. Make sure you surround yourself with reliable people who you would trust to run your business in your absence. If you ever feel that you couldn’t leave these people to work on their own — you have the wrong people in your business. Gary Janes, Channel Recruitment Persistence is key. Keeping motivated is difficult, particularly during the early stages when you’re working alone and trying to get a new brand off the ground. A fear of failure holds a lot of people back from taking the plunge but you need to believe in what you’re doing and keep at it. Ashley Percival-Smith, Norse RecruitmentRecruiters toolkit. Growing 18
  20. 20. 8. he market is volatile T TRUEThe market is volatile — but then there were no guaranteeswhen you set out on your own. The fact that you’re still hereand looking to grow is a good indication you have what it takesto make it.As an experienced recruiter you will already understand the unpredictability of income,the perils of winning and losing contracts and the impact of seasonal variation.Mitigate your risk by planning ahead — if cash is tight, consider cutting fixed costs suchas property or limit your staff overheads. Remember when expanding to check the creditworthiness of new clients — while keeping an eye on the old. Talk through any potentialissues with your lender up front.Equally, plan for an upturn — what would you do if you won a major new pieceof business? Upturn checklist: • Could you fund the increase in staff payment? • Could your systems cope? • Do you have the admin support you need in place? • Can your financing facility scale up quickly in line with your sales?Recruiters toolkit. Growing 19
  21. 21. 9. here are few opportunities T to boost your profit margin as you grow MYTHWould you like to increase profit margins and improve your ownpersonal wealth? Perhaps you want to enjoy the fruits of yourlabour and spend less time working on your business?If you’re placing candidates, referring them to a reputable and compliant employmentservice (commonly known as an umbrella business) could help you achieve your goals:Remove the admin burdenIf too much of your time is being taken up dealing with the day-to-day managementof contractors, referring them to an umbrella company will remove the hassle of admin.Because your contractors will be employed by the umbrella company, the company willbe responsible for their PAYE and will be able to offer them the security and benefits offull employment, as well as ensuring they are working compliantly.All contractors need to do is fill in their timesheets and expenses. The umbrella companywill take care of the rest.If your contractor is earning more than £15ph, then depending on their individualcircumstances, there may be more suitable options to consider. Some contractingsupport businesses can provide a full range of payment options according to the bestemployment status for them; individual limited company (PSC) or sole trader. Some alsooffer full accountancy services to ensure they make the most of their hard work and stayon top of their own HMRC paperwork.Everyone benefitsAs your business grows, so too does the risk involved with PAYE and keeping on top oflegislative compliance. By referring your candidates, you won’t have to manage the tax,NI and holiday pay implications yourself (as well as the liabilities and professionalindemnity insurance), while your contractors can maximise their take home pay byclaiming legitimate expenses.Contractors can enjoy the freedom of self-employment, with the peace of mind andbenefits of being employed, including sick pay and holiday pay.Specialists bring additional advantages. For instance, construction industry experts willbe able to ensure CIS contractors comply with their specific obligations.Recruiters toolkit. Growing 20
  22. 22. Growing laterally — considerations for acquiringcompetitor businessesAcquiring a competitor business could be a good way to quickly expand. It’s an appealingoption as most of the groundwork should have been done for you — but don’tunderestimate the costs or the amount of work required to ensure a smooth transition.When considering acquiring another business, look for proof of strong existing customerrelationships, reliable income and a decent reputation. Why is the current owner selling?Make sure it’s for the right reasons. Value the assets — and the debts.Talk to existing customers, but be sensitive to the current owner and do not reveal yourintent without clear permission. You should be able to get a good picture of what thebusiness does well and where it has shortcomings.Try to assess the quality of employees — have you had any dealings with themprofessionally, while networking or during previous roles? Ideally they should haveexperience that you can draw on to enhance your own business.One drawback to buying a business is that you will typically need to invest a large amountup front. This will include budgeting for professional fees — solicitors, accountants andsurveyors will all need to be involved. If the business is underperforming, you will need toinject extra time and money to realise its potential.Fortunately, obtaining finance might be easier if the company has a proven track record.Outsauce can helpWe have specialist contacts within the mainstream lending,business angels,private equity and venture capitalist communities.Call us to find out more0330 100 8686Consider cash flow — it’s a good idea to set aside a few months of working capital toassist with any extra costs (think: general administration, stationery, advertising etc).Rebranding the new company will add to the bill.Provided a ‘whitewash’ certificate is provided by an accountant, the target company’sinvoices can be used to release the funds for acquisition (unless it already factors ordiscounts those debts.)Existing contracts may need to be honoured or renegotiated, including employmentterms, and you should ensure there is no serious outstanding litigation againstthe company.Once you have made the decision to purchase a business and your offer has beenaccepted, you will be given a period of time to ensure due diligence. This is where thesolicitors and accountants come in.There are three types of due diligence:• legal due diligence — verifying whether all legal issues have been addressed, including ownership of assets and whether the business has the legal title to sell• financial due diligence — making sure there are no hidden surprises in the company accounts• commercial due diligence — assessing where the business sits in the market, alongside competitors and the regulatory environment.Due diligence is a critical process and you should use this time to make sure youknow exactly what you’re getting into. Use payroll records, staff files, employmentcontracts — everything you need to make the most informed decision.Recruiters toolkit. Growing 21
  23. 23. 10. eferral to an umbrella R company will mean exposing contractors and clients to dubious practices MYTHA few companies have tarnished the reputation of the umbrellaindustry by giving unscrupulous tax advice. However, althoughumbrella companies have received some bad press, there aremany which are fully HMRC compliant and operate on an ethicalbasis, providing extensive, above board benefits to agenciesand contractors.It’s important that contractors are matched with the correct employment status— a reputable contracting business will give impartial advice that ensures contractorschoose the most financially beneficial, and compliant, status for them, and they will neverpush them to make a particular decision. If joining an umbrella is not the right solution,then they will make it known and provide guidance on alternative options.Of course you are concerned about your reputation, so only refer to a well-establishedumbrella company with a good reputation of their own. The best umbrella companiesare fully HMRC compliant and operate to the most stringent standards.A successful, umbrella company with a strong history is also a much safer choicein financial terms.Unproven companies are a gamble and the consequences could be severe if they go bump.Questions to ask your umbrella:• What is your AWR Model?• What support can my contractors expect if they have employment queries?• What’s your financial track record?• How do you monitor contractor compliance? Why sweat on legislation? Ensuring conformity with legislation can be a drain on your resources. Especially when you need to focus on placing candidates and creating and nurturing client relationships. Compliant and ethical contracting services can take away the pain so you can concentrate on developing your business. Not only will you save time, money and potential legislation headaches, you’ll also be providing added value to your contractors. Want to know more? 0330 100 8686Recruiters toolkit. Growing 22
  24. 24. Conclusion Hopefully, this toolkit has dispelled a few industry myths and clarified others; you should have a clearer picture of the many considerations for running a recruitment agency and a more objective view of the potential pitfalls. Yes, there are many myths, but also many universal truths. We could have concocted reasons to put every negative aspect into the myth category — but it wouldn’t have been very convincing. It takes the right mixture of optimism and pragmatism to create and sustain success. Launching and growing your own business can be challenging, expensive and time consuming — but a little time and effort invested early on can make the world of difference to your working hours and bottom line. Take a look at successful recruitment businesses and the rewards are clear to see. The importance of effective management cannot be understated; the more control you have over the day-to-day responsibilities, the more time you can devote to business development. Recognise your strengths and where they can be employed to most benefit. A reputable outsourcing specialist can assist with complex issues or take care of the administrative tasks you simply don’t have time for. Working with a specialist in recruitment is one of the most efficient ways to mitigate risk and free you to concentrate on what you do best: placing candidates and building your business.About OutsauceOutsauce can provide financial and business support ‘on tap’to deal with every changing business demand.Built by recruiters for recruiters, Outsauce provides funding,freedom from back office administration and new marginopportunities from compliant contracting services.Contact Outsauce now to discover how we can help yougrab new opportunity.0330 100 8686ask@outsauce.netwww.outsauce.netRecruiters toolkit. Conclusion 23
  25. 25. www.outsauce.netContact Outsauce now to discover how we canhelp you grab new opportunity.0330 100