5 reasons recruitment startups fail

According to the latest figures from Companies House that were published in Recruitment International, 5110 new recruitment agencies launched in the UK during 2015, a huge 144% increase on the 2092 that were launched in 2012.

However, whilst it is difficult to establish an exact figure on the number of recruitment startups that fail within their first two years, conservative estimates put the figure at about 80%, with at least 50% of those not even making it through their first 12 months.

So if you’re a recruitment startup (or are considering starting your own recruitment agency) it pays to know why so many of these startups fail. Below we take a look at some of the main reasons.

Lack of experience

A quick look at any business forum will see lots of questions about starting a recruitment agency. Lots of these will be from people with absolutely no experience of recruitment. Many people see it as an easy to business to start, thinking it just involves matching fantastic candidates to amazing companies. The reality is very different. It’s one of the most competitive industries going, clients are tough to get, as are good candidates. Then there’s the constant business developement, paying people, all the employment regulations you have to follow….

Lack of planning

It may be an old adage but the phrase “fail to plan, plan to fail” is as true today as ever. Failing to have a business plan and knowing what your business offers, who to and how you are going to drive it forward is a recipe for trouble in the future and can result in your business becoming directionless. Business plans are also important if you’ll be requesting finance in the future.

Lack of focus on what brings the money in

Also known as procrastination. So many new recruitment owners focus their energies on things such as the detailed design of their business cards, the intricacies of their website and choosing a logo. Yes these things have to be done but not at the expense of making money. Get your priorities right and get the money rolling in before you focus too much time on these sort of things.

No structure to the day

Recruitment is all about multitasking. Calling for new business, calling candidates, formatting CVs and doing general admin are just some of the tasks you should be doing every day. If you’re not careful, you can soon end up jumping from one task to another achieving very little which is severely detrimental to your business. It’s therefore vital that you try and stick to a day plan whilst still remaining flexible enough to deal with urgent issues.

Cash flow

The biggest reason most recruitment startups fail is cash flow. You can have lots of vacancies, be filling jobs every day but if you’re not getting paid, your business is going to cease trading. From getting a vacancy, it can be up to six months before you get paid for placing a candidate when you factor in the time recruitment takes (many people forget lots of candidates have to work a notice). You have to service your business in that time including paying yourself and any staff you have.

What many recruitment companies don’t realise is that there are ways around this thanks to such finance options as factoring and invoice discounting. Giving you access to money from your yet to be paid invoices immediately for a small fee, it can really solve your cash flow woes.

If you’d like a free, no obligation chat about improving your company’s cash flow then call Factoring Solutions now on 01827 707680

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