Every year many new start-up recruitment agencies are formed all trying to be as successful as possible to ensure that they can continue to grow in the years beyond.
However, many new start-ups are not as successful in their first year and below are some reasons that Mayachi Ltd has seen over the years that have caused the agency to fail.
These reasons have included:
1. SPEND ALL THE MONEY IN THEIR BANK ACCOUNT
The company bank account can often be believed to be the barometer of how successful the agency is and for this reason, recruitment directors may withdraw money from the account without knowing if they can or can’t take use funds. However, company bank accounts will often be holding money owed to suppliers and mainly HMRC for PAYE, VAT and Corporation Tax but taking out funds without understanding what is owed can be dangerous. The best way to avoid this is to have monthly management accounts which can educate the director on how much is available to take and how much is owed to other creditors.
2. DIRECTORS TAKE MORE MONEY THAN THE COMPANY IS MAKING
There are tax-efficient ways in which directors can legally take funds from their business such as dividends and expenses. However, dividends can only be taken if the company has retained profit after corporation tax has been deducted. If the company has not made sufficient profit, then the directors can take funds, but these would be as a director’s loan which must be repaid within 9 months of the year end or they will suffer section 455 tax. Overall, taking more money than the company is making can put a huge strain on the cashflow and cause suppliers and HMRC to be unpaid.
3. TAKE ON TOO MANY STAFF TOO QUICKLY
Staff are one of the biggest costs on a recruitment agencies book as this includes not only their salary but also the employer’s national insurance, pension, desk costs and time spent managing them. New consultants will often not make their first placement until 2-3 months into their employment and not break even until 6-9 months after starting. Therefore, budgeting for each staff member is important to ensure that an agency does not take on too many new staff too quickly and cause financial stress on the business.
4. UNDERCUTTING THE COMPETITION
Sometimes a new agency will look to provide an introductory discount to clients to try and get themselves recognised by a client and get those all-important placements. However, this kind of practice can backfire as the client may believe that this is the fee charged on an ongoing basis and not be willing to work with the agency if the rates are increased.
5. NOT PUTTING IN 100%
The first year of running a new agency can be one of the most demanding times in a new recruitment director’s life. Setting up the company, implementing new policies and procedures, training and managing the first staff members whilst making those all-important placements will mean that the directors will need to put in a 100% effort and time to ensure that the business is a success in the first year.
MAYACHI LTD can provide advice, help and support to new start-up recruitment agencies to ensure that their first year and beyond is successful. MAYACHI LTD can advise on the set-up and registration of the new agency and ongoing support during the first 12 months to avoid some of the reasons above coming true.
Get in touch today or book your free 2-hour consultation call.
