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How to start a recruitment agency

5-minute read

Recruiter speaking to candidate
Simply Business

Simply Business

7 April 2022

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Got great sales skills and love working with people? You’re in a good position to set up a recruitment agency.

But what do you need to make a success of a new recruitment business? Read on for our checklist of things to consider to make sure you’re fully prepared.

Launching a recruitment agency – what skills do you need?

Launching your business with little experience could be challenging. But it’s not impossible, especially if you have these key skills and qualities:

  • communication and people skills
  • sales and negotiation skills
  • organisation and prioritisation skills
  • problem-solving skills
  • confidence and motivation
  • good time management
  • team working skills

Are you prepared to work long hours?

Your business is likely to work with people who are already working 9 to 5 Monday to Friday – whether that’s employers looking for candidates or candidates looking for employers.

This means there’s a high chance you’ll need to be available outside of these hours, with regular early starts and late finishes to accommodate the needs of your clients and job seekers.

Choose whether to work from home or a business premises

One of the great things about this type of business is that it needn’t be too costly to start up, as it's not essential to have premises – starting a recruiting agency from home is a realistic option. Read our guide on starting a business from home for some top tips.

However, if you decide to set up in dedicated business premises, there are a few extra things to consider – such as insurance (more on that below) and business rates.

The importance of staying motivated

Of course not every candidate you put forward for a role will be successful. That said, it’s good to bear in mind that the work you put into building relationships with candidates and employers will rarely go to waste.

If you put in the effort to make them feel like you’ve listened to their needs, they’ll be much more likely to come to you next time they’re looking to hire or be hired.

How do recruitment agencies make money?

As setting up without business premises will give you one less overhead to take into account, you’ll potentially be able to offer more competitive rates. Just bear in mind that this may become an issue if your business grows and you decide to take on staff.

How you make money will depend on whether you focus on placing temporary or permanent candidates, but your fee will always be paid by the employer.

You’ll need to decide whether you want to charge a flat fee or charge commission on the successful placement of a candidate. Many recruitment agencies charge a percentage of the candidate’s salary, on a sliding scale.

Deciding on your target market will help you decide on pricing. For example, smaller businesses may prefer to pay a flat fee due to them generally having lower amounts of available cash, while larger organisations may have no issue with paying commission.

The difference between employment agency and employment business

Keep in mind that while these terms are often used interchangeably, they're different in the eyes of the law.

An employment agency finds work for a candidate who's then employed by an employer. This is usually long-term work and the new employee is paid a salary by the business they work for.

An employment business hires candidates themslves and the employee then goes out to work under the supervision of another person (as part of a different business). The employment business usually pays the worker's wages. This is oftern referred to as 'temping' or 'temporary agency work'.

Candidates at job interview

Find a niche for your recruitment business

With so many recruiters out there, make sure potential clients and candidates understand what makes you unique. It can be a good idea to specialise in a key industry or industries, such as accountancy or technology.

If you take the time to learn their area of business inside and out, there’s a higher chance they’ll put their faith in your knowledge and ability to find them suitable candidates or roles.

To help find a niche for your agency, it can be useful to take stock of what makes you stand out, analysing current market conditions and researching your competitors. Download our SWOT analysis template and competitor analysis template to get started.

Recruitment agency start-up costs UK

The cost of setting up a recruitment agency will vary from business to business. Here’s an overview of some of the main start-up costs:

  • buying a domain and setting up a website
  • registering your company
  • marketing and branding
  • insurance and tax
  • industry software and accounting tools

You’ll also need to take costs like your own salary, travel expenses, prospect sourcing, and IT support into account.

According to Sonovate, a supplier to the recruitment industry, it could cost around £300 a month plus start-up costs to launch your own recruitment agency.

Here are some free business resources to help keep your finances on track:

How much does a recruiter earn?

How much you can earn will depend on the business sector you specialise in, where in the country you operate, and whether you choose to work from home or from an office.

Remember that it could take time to start earning a good salary, but the rewards could be significant in the medium-term if your business takes off.

According to recruitment consultancy Macildowie, recruitment managers can earn a basic salary of around £40,000. Meanwhile, Reed estimates that the average recruitment consultant salary in the UK is just under £30,000.

How much you and your staff take home each month will depend on your commission model and the number of clients you have.

Make sure you have the right business insurance

Whatever route you decide to go down, don’t forget to consider your insurance requirements.

Legal action against your business may seem an unlikely prospect when you’re just starting out, but it’s better to be safe than sorry.

Key covers for recruitment agencies to consider include:

  • public liability insurance – in case someone is injured or their property is damaged because of your business
  • professional indemnity insurance – in case you give faulty advice that causes financial loss to a client
  • employers’ liability insurance – in case someone who works for you is injured or becomes seriously ill as a result of working for you. It’s a legal requirement if you employ people, whether full time or part time, permanent, or temporary

Decide on your business structure and register with HMRC

You’ll have the option to start up as a sole trader or a limited company when you begin trading in your recruitment agency business. There are pros and cons to both setups, which you can read more about in our article sole trader vs limited company.

It’s also important to make sure you’re registered as self-employed with HMRC so you can pay the correct tax minus any allowable expenses.

We’ve also got a handy guide on setting up as a limited company with Companies House, if you choose to go down that route.

Here are some extra guides to help you pay your taxes:

Stay on the right side of the rules

Before you get going, and especially if you’re new to the industry, it can be a good idea to brush up on the latest rules and regulations by attending a training course. The Recruitment & Employment Confederation (REC) is a good place to start.

It’s also worth familiarising yourself with the legislation governing recruitment agencies: the Employment Agencies Act 1973.

Further to this, the Conduct of Employment Agencies and Employment Businesses Regulations 2003 explains the difference between a ‘recruitment agency’ and a ‘recruitment business’ in the eyes of the law, as mentioned above.

What do you think makes a good recruitment agency? Let us know in the comments below.

Read more:

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Simply Business

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