Most new start-up recruitment agencies are founded by recruiters who want to build something for themselves.
However, many of these new directors have never run a business before. Areas such as accounting, taxation, HR, compliance, and funding were typically handled by their previous employer, leaving them with little experience to draw on.
It’s natural for directors to make mistakes in the early stages, and hopefully they learn from them quickly. Others choose to seek expert advice to ensure the start-up process runs smoothly and without costly errors.
Below are some of the most common misconceptions we hear from new recruitment agency directors and the correct advice that should guide them instead:
“I can’t do temporary or contract placements until I have money in the bank.”
New start-ups can absolutely begin making temporary and contract placements right away. This can be achieved through a Pay-and-Bill provider or by setting up a full Invoice Finance facility, provided the agency has a solid back-office provision and growth projections in place.
There is no requirement to have cash reserves in the bank to access these facilities and when set up correctly, agencies can generate ongoing profit from day one.
“I shouldn’t put myself on payroll until the company is profitable.”
Directors should always run a minimal annual payroll (currently £12,570), even if the funds are not drawn each month. These amounts can be allocated to the Director’s Loan account and taken later, tax-free, once funds are available.
This ensures directors don’t miss out on their national insurance and tax allowances, while also reducing corporation tax once the company becomes profitable.
“I don’t need to register for VAT until I pass the threshold.”
Every recruitment agency should register for VAT from day one. Waiting until turnover exceeds the threshold can create several disadvantages:
- It makes the agency appear smaller to potential clients.
- The business won’t be able to reclaim VAT on start-up expenses.
- Clients who are themselves VAT registered see no difference whether you are VAT registered or not.
Being VAT registered from the outset is both professional and financially beneficial.
“I’m self-employed in my limited company.”
Directors of limited companies are not self-employed. They are employees of their own company.
While directors must complete a self-assessment return to pay personal tax on dividends, for all intents and purposes, they are employed workers of their limited company.
“I need to undercut my competition to win business.”
New agencies should never feel pressured to slash fees to attract clients.
Undercutting sends the wrong message: clients may expect more service for less, and they are unlikely to agree to higher rates later. Recruitment is a valuable service, and fees should reflect the expertise and effort required.
“I can’t claim expenses if there’s no money in the bank.”
All businesses incur expenses, and if directors pay these personally, they can and should be reimbursed by the business.
If funds are not available in the company bank account, the expense should still be recorded and credited to the Director’s Loan account. Later, once cash is available, directors can take the reimbursement tax-free as it represents legitimate business costs (e.g., mileage, home office allowance, etc.).
At MAYACHI, we work closely with new start-up recruitment agency directors to ensure they receive the right advice from the outset. Our goal is to help directors focus on growing their business and making those all-important first placements, while connecting them with partners who can take on time-consuming administrative tasks.
