The Recruiters Toolkit -The Outsauce View

The Outsauce view

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

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

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

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 Recruitment

Recruiters' toolkit. Thinking 03

1. etting up a recruitment
S
agency is expensive
MYTH
The must haves
The 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’t
need an office to start with — just a room at home with the essentials: a laptop, a phone
and your contacts. Or a coffee shop with free wi-fi.
You will need funding though, which we’ll discuss in section 3.

Insurance
The benefit of only requiring a few assets means you
won’t need to worry about different types of insurance
— but you will need to investigate liability insurance. Insider tip
In most instances employers’ liability insurance is
Outsauce partners with Caunce O’Hara,
compulsory for businesses with employees. Bear this in
specialists in liability insurance for
mind if you are going to make temporary placements in
recruitment businesses.
particular. If you place temps via an umbrella company
however, this liability is removed as they effectively Go to www.outsauce.net/
become the umbrella’s employees. services/value-added-services/
Professional indemnity insurance meanwhile will help to for-recruiters
protect from any claims made against your business for
the services you provide.
When starting out, the most important thing is to
understand exactly what insurance you need and what
is optional. You can then scour the market for the best
policies for you.*

Contracts
Your requirements for contracts will vary depending on the exact nature of your
business and the sectors for which you recruit. The 2003 Conduct Regulations
require formal contract terms to be agreed with all clients and temporary candidates,
including contractors. If you’re already working in recruitment, think about the contracts
you 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 Labour
Providers (ALP) and the Recruitment and Employment Confederation (REC) may also
be able to assist you in this area.


Are you planning on recruiting for temp
or perm staff?
Temps and perm staff bring different financial and logistical implications for
your 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 pipeline
of new placements.
Temps need to be paid every week — and in most cases you will be paying them before
you 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 an
additional 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 dedicated
to 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 converted
to fee paying customers? Whether recruiting temps or perms, consider how much work
you can expect to put through your business in the first few months — and factor in
delays around placements and payments. Securing a steady income is a priority for your
fledging agency so be realistic about how, and where the money will come from in the
early days.
Fortunately, there are options available to agencies to overcome this hurdle, including
invoice 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 that
you 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 NI
contributions and holiday pay burdens.


Marketing your recruitment agency
Your mindset will ultimately decide the success of your marketing efforts. Do you view
marketing as a cost or strategic investment? If you consider it a strategic investment then
you need to plan around two key numbers:
1. Average client lifetime value
2. Average client acquisition cost

Or 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 cost
model that you are comfortable with, you can then start to test and evaluate the plethora
of 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 measurable
activity. It’s important not to confuse cost efficiency with effectiveness. An email blast
to a cold database may be very cost efficient, but how much more effective and impactful
could a physical mailing be?
The catalyst for growth for many recruitment businesses has been a strategic focus
on becoming a voice of authority in a specific market sector. Build relationships with
key journalists by becoming a useful and interesting source of information and opinion.
Social media represents the greatest opportunity for a ‘free’ marketing investment
as 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 networking
there are always hidden opportunity costs to activities that just involve time. Only after
a sustained effort can you make an accurate judgement call on the effort:reward
ratios involved.
Thanks to the cloud, smaller recruitment agencies can compete against large corporates
through 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 means
nothing, if prospective clients won’t contact you if they cannot see beyond a cheap
website, logo, copy style etc.
As a service provider you are essentially ‘selling the invisible’. A professional brand
identity will reduce the perceived risk of working with you and subconsciously give
you a confidence boost.


2. here’s personal financial
T
risk involved PARTLY
TRUE
Risk is an inevitable component of any business venture
— it’s the price of opportunity. How you manage risk is
more 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 cover
your 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 mortgage
or a second mortgage puts extra pressure on your household.
Also, be wary of signing a personal guarantee… A personal guarantee is a common way
to secure a loan for start-up businesses without a credit record. A director, who is also
a 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 should
not be entered into lightly. On the plus side, they allow new companies to borrow money
relatively easily and are only enforced if payments stop. But should the company default
on its debt, the lender may seek the money from the guarantor. If he/ she is unable to
pay, the lender may seek a bankruptcy order.
Explore all your options before committing to a personal guarantee — and always
get your liability in writing.

Benefits of applying for funding through
a reputable financing company
For the day-to-day funding requirements of a recruitment agency, support from
a financing company can make all the difference.
A respected financing business will work with you to reduce your risk, managing
important 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.


3. t’s difficult to get funding
I
MYTH
Given the current economy, you’d be forgiven for thinking
money is hard to come by. However, there will always be
opportunities for promising businesses.
Firstly, you’ll need a business plan. Banks won’t lend to you
without 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 to
remember 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 option
Bank 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 nevertheless
Overdrafts
• Not great for lump sums but useful to aid with cashflow Borrowing privately
• good option if you have supportive family/friends.
A
An 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 valuable

Commercial lenders — such as insurance Equity split with a partner
companies 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…


Options for temp recruitment
Factoring and invoice discounting
In simple terms, factoring and other forms of invoice finance allow recruitment agencies
to get ‘paid’ earlier. In factoring, a recruitment agency can sell its invoices to a factoring
company at a discount, before the end-customer has paid. This means that for a relatively
modest fee, agencies can get a reliable cash flow and do not have to worry about
chasing invoices.
Invoice discounting is effectively borrowing against unpaid invoices. The end results
are similar to factoring although invoice discounting is closer to ‘pure’ lending as,
unlike a factoring facility, you retain responsibility for chasing payment and managing
the sales ledger.
For many temp agencies, factoring/invoice discounting are essential tools. The key is to
choose 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 a
specialist vs. generalist
There are many financing providers out there with
apparently similar products. The trick is to find one that
really knows the industry and how to help your business Did you know?
handle the unique challenges of the recruitment sector.
With Outsauce, funding can be
A specialist should understand your requirements and combined with a full suite of financing
work in partnership with you, from start-up and beyond. services including credit control and
They should have a genuine empathy and where possible, sales ledger administration.
first-hand experience of your challenges. Specialists
understand the unpredictable nature of the recruitment With up to 100% funding for temporary
industry and will be more inclined to finance phoenix invoices, all your temps are paid on time and
businesses — 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 perm
Generalists have their place, but they are not ideal invoices as part of a combined offering
for 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 8686


4. t’s not a good time to
I
be setting up YOUR
CALL
The economy is poor. A bad debt can mean the difference
between success and failure. But fortune favours the brave.
In a depressed economy the leaner and nimbler operations
often 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 recruitment
had bounced by 25% to just under £25billion.
And it’s on the rise. The medium term forecast for the industry is single digit growth over
the next four years with the industry peaking at over £30 billion in 2014/15.


5. he first few years
T
are the hardest
TRUE
Running your own business is not a hands-off pursuit. There’s no
getting around the fact that in order to succeed, you will have to
be committed — and that means late nights, weekend working
and precious few holidays in the first years. Unless you’ve set up
in 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 increase
your 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-Myth
principle 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 time
is 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 in
reality you’ll still have to ensure timesheets are submitted, answer queries and handle
new 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 8686


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 www.companieshouse.co.uk

Registering for tax DIY www.hmrc.gov.uk

Self-assessment DIY www.hmrc.gov.uk

National Insurance Consider outsourcing www.outsauce.net

Holiday Pay/ Statutory Sick Pay Consider outsourcing www.outsauce.net

Insurance DIY www.caunceohara.co.uk

Funding Outsource to a specialist finance provider www.outsauce.net

Contracts with clients and candidates Outsource to your solicitor www.lawsociety.org.uk

Ensuring compliance Consider outsourcing www.bauerandcottrell.co.uk

Paying your workers Outsource to a specialist finance provider www.outsauce.net

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
ask@outsauce.net
www.outsauce.net


Starting
What I know now...

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.

You will have bad days running a new organisation but it’s important
you convert those bad days into good weeks.
Simon Noakes, Bespoke Recruitment

Recruiters' toolkit. Starting 13

6. he administration required to
T
start up and run a recruitment
business is complicated and
time consuming PARTLY
TRUE
It’s true; there is a lot of paperwork involved when setting
up your business. However, it needn’t be overly complicated,
provided you get the right guidance and specialist assistance
where required. You can even outsource a lot of the more
technical aspects to your accountant or solicitor.
When setting up, there are many options available. For instance, you can become a sole
trader, enter into a partnership or become a limited liability company. Which one you
choose will depend on you — it’s a good idea to take advice from a specialist to make sure
you 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:
http://www.hmrc.gov.uk/selfemployed/register-selfemp.htm

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:
http://www.companieshouse.gov.uk/about/gbhtml/gp1.shtml

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:
http://www.hmrc.gov.uk/vat/start/register/index.htm

Why battle the admin?
Outsauce Accounting can provide assistance with all of
the administration required in starting up.

Want to know more?
0330 100 8686


Legislation governing employment agencies
As well as the general legislation which applies to all businesses, both temp and perm
agencies 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) but
the rest is your responsibility. In 2013 this will also mean being on top of your AWR and
pensions auto-enrolment responsibilities.*

Record keeping…
To prove compliance, you have to record everything. Tips for negotiating a
Agencies must demonstrate they have followed the business lease:
Employment Agencies Act 1973 and Conduct Regulations
2003 legislation. You’ll need to keep details pertaining to • equest a rent-free period to help your
R
applications, hirers and your dealings with other agencies. cash flow
Agencies must be able to supply this information for up • nquire after quarterly rent payments rather
E
to one year after creation and within two business days of than monthly
being requested. (Modelling and entertainment agencies
have 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 assistance
the paperwork • et a schedule of condition so you don’t have
G
Of course, record keeping must be completed alongside to foot the bill for any repairs
day-to-day administration: payroll, sales ledger, purchase • on’t pay the landlord’s legal costs
D
ledger etc. It can be time consuming and there is always
the risk you will take your eye off placing people and • you have a limited company, ask for the
If
building relationships — or perhaps go the other way and lease to be put in its name to limit your
make a crucial slip in the paperwork. liabilities (Offer rent deposit, rather than
directors guarantee)
You might consider outsourcing various aspects of back
office administration to an outsourcing business so you
can focus on developing your business.

*Read more about AWR and auto-enrolment in 2013 with
our Guides available at www.outsauce.net/resources


7. here are too many pitfalls
T
to remaining compliant PARTLY
TRUE

There are numerous legal requirements facing recruitment
agencies. Achieving compliance is not necessarily difficult,
but it demands a good working understanding of the law and
can be time consuming.
Recruitment agencies are covered by both general legislation governing businesses
as 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 businesses
with 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: https://www.gov.uk/contract-types-and-employer-responsibilities/fulltime-and-parttime-contracts


Obligations specific to recruitment agencies
If you operate a temp agency, some responsibilities fall to the client who is hiring your
workers and the rest to you.
The client pays you, including the sum for your employees’ NICs and SSP. It is your
responsibility to pay your workers.
Temp agencies are responsible for ensuring their workers receive their rights under
working time regulations. The client remains responsible for their health and safety.
In accordance with AWR, after 12 weeks’ continuous employment, agency workers get
the same rights as permanent employees in most respects. These include: pay, working
time, rest periods, night work, breaks, annual leave and maternity, paternity
or adoption leave.
The client must provide you with information on the relevant terms and conditions
but it is your responsibility to ensure that your worker receives these rights.

Additional information
There is a great deal of information available on all of these topics:
The new www.gov.uk website is a good place to start.
For instance, if you are employing migrant workers, view this section on ensuring
your employees are eligible to work in this country:
https://www.gov.uk/check-an-employees-right-to-work-documents
The Employment Agency Inspectorate (EAS) is a government body that works with
agencies, employers and workers to ensure compliance with employment rights.
For useful links to advice and legalisation, visit: http://www.bis.gov.uk/eas
The above sources are useful, however, due to the complexities involved, it is always
advisable 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 advisers
0330 100 8686
ask@outsauce.net
www.outsauce.net


Growing
What I know now...

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.

Recruiters' toolkit. Growing 18

8. he market is volatile
T
TRUE
The market is volatile — but then there were no guarantees
when you set out on your own. The fact that you’re still here
and looking to grow is a good indication you have what it takes
to 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 such
as property or limit your staff overheads. Remember when expanding to check the credit
worthiness of new clients — while keeping an eye on the old. Talk through any potential
issues with your lender up front.
Equally, plan for an upturn — what would you do if you won a major new piece
of 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?


9. here are few opportunities
T
to boost your profit margin
as you grow
MYTH
Would you like to increase profit margins and improve your own
personal wealth? Perhaps you want to enjoy the fruits of your
labour and spend less time working on your business?
If you’re placing candidates, referring them to a reputable and compliant employment
service (commonly known as an umbrella business) could help you achieve your goals:

Remove the admin burden
If too much of your time is being taken up dealing with the day-to-day management
of 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 will
be responsible for their PAYE and will be able to offer them the security and benefits of
full employment, as well as ensuring they are working compliantly.
All contractors need to do is fill in their timesheets and expenses. The umbrella company
will take care of the rest.
If your contractor is earning more than £15ph, then depending on their individual
circumstances, there may be more suitable options to consider. Some contracting
support businesses can provide a full range of payment options according to the best
employment status for them; individual limited company (PSC) or sole trader. Some also
offer full accountancy services to ensure they make the most of their hard work and stay
on top of their own HMRC paperwork.

Everyone benefits
As your business grows, so too does the risk involved with PAYE and keeping on top of
legislative 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 professional
indemnity insurance), while your contractors can maximise their take home pay by
claiming legitimate expenses.
Contractors can enjoy the freedom of self-employment, with the peace of mind and
benefits of being employed, including sick pay and holiday pay.
Specialists bring additional advantages. For instance, construction industry experts will
be able to ensure CIS contractors comply with their specific obligations.


Growing laterally — considerations for acquiring
competitor businesses
Acquiring a competitor business could be a good way to quickly expand. It’s an appealing
option as most of the groundwork should have been done for you — but don’t
underestimate the costs or the amount of work required to ensure a smooth transition.
When considering acquiring another business, look for proof of strong existing customer
relationships, 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 your
intent without clear permission. You should be able to get a good picture of what the
business does well and where it has shortcomings.
Try to assess the quality of employees — have you had any dealings with them
professionally, while networking or during previous roles? Ideally they should have
experience 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 amount
up front. This will include budgeting for professional fees — solicitors, accountants and
surveyors will all need to be involved. If the business is underperforming, you will need to
inject extra time and money to realise its potential.
Fortunately, obtaining finance might be easier if the company has a proven track record.

Outsauce can help
We have specialist contacts within the mainstream lending,
business angels,private equity and venture capitalist communities.
Call us to find out more
0330 100 8686

Consider cash flow — it’s a good idea to set aside a few months of working capital to
assist 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’s
invoices can be used to release the funds for acquisition (unless it already factors or
discounts those debts.)
Existing contracts may need to be honoured or renegotiated, including employment
terms, and you should ensure there is no serious outstanding litigation against
the company.
Once you have made the decision to purchase a business and your offer has been
accepted, you will be given a period of time to ensure due diligence. This is where the
solicitors 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 you
know exactly what you’re getting into. Use payroll records, staff files, employment
contracts — everything you need to make the most informed decision.


10. eferral to an umbrella
R
company will mean exposing
contractors and clients to
dubious practices
MYTH
A few companies have tarnished the reputation of the umbrella
industry by giving unscrupulous tax advice. However, although
umbrella companies have received some bad press, there are
many which are fully HMRC compliant and operate on an ethical
basis, providing extensive, above board benefits to agencies
and contractors.
It’s important that contractors are matched with the correct employment status
— a reputable contracting business will give impartial advice that ensures contractors
choose the most financially beneficial, and compliant, status for them, and they will never
push 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-established
umbrella company with a good reputation of their own. The best umbrella companies
are fully HMRC compliant and operate to the most stringent standards.
A successful, umbrella company with a strong history is also a much safer choice
in 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 8686


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 Outsauce
Outsauce 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 margin
opportunities from compliant contracting services.
Contact Outsauce now to discover how we can help you
grab new opportunity.
0330 100 8686
ask@outsauce.net
www.outsauce.net

Recruiters' toolkit. Conclusion 23

www.outsauce.net

Contact Outsauce now to discover how we can
help you grab new opportunity.
0330 100 8686
ask@outsauce.net

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