The decision to start a new recruitment agency often brings a mix of feelings from apprehension to anticipation, particularly for directors transitioning from employment into business ownership. While launching a new venture is an exciting opportunity, it is crucial to understand the financial responsibilities involved, especially when moving away from the stability of a guaranteed salary and a commission structure.
Outlined below are key financial considerations every new recruitment agency director should take into consideration:
MAINTAIN A FINANCIAL BUFFER OF AT LEAST 3-6 MONTHS’ SALARY
When launching a new recruitment agency, it’s unlikely that the business will generate enough cash flow in the first 3–6 months to support the director taking funds from the business. Even if a deal is closed within the first month or two, payment from the client might not arrive until months 3–5 and that income may only cover initial business expenses. For this reason, directors should have at least 3–6 months of personal savings before starting the business.
IT CAN TAKE 6-9 MONTHS BEFORE YOU SEE A PROFIT
Achieving profitability within the first 12 months is a challenge for most start-ups, with many seeing minimal or no profit in their first year. This means directors expecting to take dividends (which are only payable from net profits after corporation tax) may need to wait. In most cases, profits may begin to emerge around the 6–9 month mark, once initial setup costs have been covered.
A PORTION OF CLIENT PAYMENTS WILL BE TAXED
One major adjustment for directors, especially those previously employed, is understanding that revenue is only recognised once payment is received. Once funds are in the bank, a significant portion will be owed as VAT (20%). If the company is profitable, corporation tax (typically between 19–25%) will also apply. Finally, if directors take dividends, they will be liable for personal tax on those funds (ranging from 8.75% to 39.35%)
START-UP EXPENSES CAN BE CLAIMED
Directors often incur costs before the company is formally incorporated such as meetings with suppliers and accountants, buying equipment, or paying registration fees. These expenses can be claimed through the business once it starts trading. If there isn’t sufficient cash flow at the time, the costs can be recorded as a Director’s Loan, allowing directors to be reimbursed later when funds become available.
DON’T BE AFRAID OF DECLARING A SALARY OR CLAIMING EXPENSES
New businesses often hesitate to declare expenses or pay salaries, mistakenly thinking they shouldn’t do so if funds are limited. However, legitimate business expenses, including salaries, mileage claims, and purchases made personally by the director, should still be recorded and allocated to the correct month. These can be credited to the Director’s Loan and reimbursed once the business is financially stable.
MAYACHI has extensive experience supporting recruiters with launching and scaling their own recruitment businesses. We provide clear, practical guidance throughout the start-up process, with particular focus on financial planning, compliance, and ongoing cash flow management. Our aim is to equip new agency owners with a comprehensive understanding of VAT, corporation tax, expense management, and their broader financial obligations—ensuring a confident transition from recruiter to successful business director.
