Finance for a New Recruitment Business

Finance for your new recruitment business may not be the most exciting item on your ‘to do list’ but it will be one of the most important decisions you make.

If you are looking to start a new recruitment business you will have numerous exciting decisions to make including what to call your business, choosing a logo, premises, etc.. But how you finance your business will impact on your ability to grow the business and take on new contracts.

For the most part we will be talking about temporary recruitment businesses that place contractors but it is also relevant to permanent recruitment businesses.

What are the implications of choosing the wrong finance for your new recruitment business?

If you start a new recruitment business and choose the wrong finance product or structure it incorrectly the facility may not generate the cash that you expect. At best this will restrict your growth but the worst case scenario is that your business will fail as you cannot meet the wage demands of your contractors.

One example of how a facility can be restricted can be demonstrated with the following example. A well known bank always imposes a 30% concentration limit on any invoice finance facility. You as a new start business set up a factoring facility with an 80% prepayment and you start looking to secure new contracts for temporary labour supply. A large supermarket chain agrees to take staff from you and you are delighted. At the end of week one you issue an invoice for £100,000 and notify this to the lender. 85% should release £80,000 but the concentration limit kicks in. When this limit is applied the ‘eligible debt’ is only £30,000. When your 80% prepayment is applied this only generates £24,000. In effect a 24% prepayment and a far cry from the 85% you were expecting. How do you pay your contractors? In such a situation your business could struggle to survive.

This is a very real example and one I have seen many times. It is imperative any new facility is structured to meet the unique needs of your business.

How can Funding Solutions help?

At Funding Solutions we have years of experience structuring finance facilities for recruitment businesses and we are aware of what restrictions can impact on your funding.

In the same way that restrictions can impact on the cash generated, hidden costs can escalate costs way above what you had expected. Again, we are well versed in how to make a true comparison between finance facilities. As such we can ensure you set up a cost effective solution which allows you to run your business profitably.

How much will it cost?

The finance for your new recruitment business will need to be cost effective in order to make it viable. The best indication of costs can be given by using our quotation tool. This is because the cost will differ for each business. It will depend on variables such as your projected turnover, the number of customers you are likely to have, how many invoices you expect to raise and what additional services you would like to use. These additional services can include credit control, payroll, invoicing, administration of your VAT and PAYE along with other options. These are all useful options and may be more cost effective than trying to do the work ‘in-house’ but they obviously have costs associated with them.

The next step

If you want to talk through the options for your new start recruitment business or would like someone to meet with you to discuss your options please contact Funding Solutions today on 0845 251 4040.


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