How to start a recruitment agency

As the UK starts to rebound from a challenging and trying year, the recruitment industry is experiencing rapid and exciting growth. So whether you’re a seasoned recruitment professional or are looking to break into the industry, now could be the perfect time to start your recruitment agency.

Getting started can raise many questions, everything from ‘how exactly do I start a recruitment agency’ to bigger questions like ‘how do I register with HMRC and start finding clients?’

Our guide will walk you through how to start a recruitment agency, including how to:

• Register your new company with HMRC
• Register for VAT (if you meet the threshold)
• Set up a business current account
• Find an accountant
• Comply with data privacy laws (since you’ll be processing personal data)
• Setting up your recruitment software
• How to find your first clients
• Sending your first invoice
• How Countingup helps freelancers organise their finances

Before you can register your company with HMRC, you’ll need to decide on a name for your new recruitment agency. You can start simply by registering with your name (a good option if you plan to stay as a consultant), or you might choose a company or trading name that separates you from the company and allows your new agency to have a distinct brand.

Once you’ve chosen a name, you need to register with Companies House before trading. Companies House has made this process straightforward, and you can complete the application on their online portal or by post. 

To register, you’ll need to provide details like:

• Company name and UK office address
• Director name, address, nationality, date of birth and business occupation
• Share capital details, currency and number of stocks/shares held

Check out our guide on how to register a company name, where we explain in more detail how to register and what you need to consider.

You’ll also need to decide whether you’d like to be a sole trader, limited company or partnership. As a one-person company, you’re most likely to choose between a sole trader and a limited company.

• Sole traders. You can be a sole trader if you work for yourself and take full personal responsibility for the profits and losses of your recruitment agency. As a sole trader, you’ll need to pay tax and National Insurance by completing a self-assessment tax return. Read our full guide on ‘How to register as a sole trader’ for more information.
• Limited companies. Limited companies are separate legal entities from their owners, which means that the company is responsible for any profits and losses. As a result, your finances have to be different from the company’s, and you’ll need a business current account. You’ll also need to pay Corporation Tax and decide whether to pay yourself on payroll, by dividends or a combination of both. 
• Partnerships. Partnerships may not be relevant at this early stage, as partnerships are when two or more people agree to share the company’s profits and losses and are responsible for the risks, costs and debts, and other responsibilities of running a recruitment agency.

Once your recruitment agency reaches the VAT threshold (currently £85,000 a year), you need to register for VAT and comply with Making Tax Digital requirements like keeping digital records and submitting your VAT returns using MTD-compatible software.

Suppose you plan to register as a Limited Company. In that case, you’ll be legally required to keep the company finances separate from your personal finances, so you won’t be able to use your personal bank account. While there is no legal obligation for sole traders to have a business current account, it is still a good idea to keep your personal and business expenses separate – it will save you hours of admin in the long run.

Read more about ‘What you need to start a new business’ in our recent article.

You don’t need an accountant to start your recruitment agency, but having a good accountant can make managing your finances easier. A good accountant will also act as a strategic advisor by helping you make your finances go further and make smart, financially savvy decisions. Some accountants specialise in recruitment, which could also be helpful.

Our guide on ‘Do I need an accountant?’ provides further insights into making this important decision.

As a recruitment agency, you’ll be processing personal data. For example, candidate CVs will often include information about their past work experiences and their home address and contact details. As such, you’ll need to make sure that you’re fully up-to-speed with the latest data privacy laws and have suitable systems in place to protect this information and stay compliant.

If you’re processing any personal data or keeping client records, you should register with the Information Commissioner’s Office (ICO). You also need to make sure you comply with the General Data Protection Regulation (GDPR), which explains how you should handle customer data correctly, especially when emailing them.

Get more business advice and tips in our ‘Ultimate guide for startup success — looking ahead.’

Recruitment management systems, also known as ATS, e-recruitment software, or staffing software, will make it much easier to process candidates at scale, stay on top of open positions, and ensure personal information is protected.

Recruitment management systems typically cover four main features:

• Customer relationship management (often abbreviated as CRM)
• Job postings
• Application tracking software
• Reporting

Together, these features help you streamline your efforts to reduce costs, work remotely (until you’re ready to have an office), and provide security. You’ll also have one place for all information, notes and documents, so you don’t have to use multiple platforms or job boards.

TalentLyft is an excellent recruitment software for new businesses as they’re geared at startups, offer free trials and even have an early-stage startup programme. Regardless, it’s essential to shop around to find the best recruitment software for your recruitment agency.

Finding your first client can be challenging, especially when you’re new to the playing field. But, as you build momentum and more companies start to know your name (and excellent service), it’ll become increasingly easier to attract new clients. Here are some tips to help you find your first clients:

Early on, you’ll need to decide whether you want to focus on a niche or remain a generalist. For example, will you focus on recruitment for the technology or creative sectors? Or, do you want to only recruit for executive positions? Choosing a niche can make it easier to find clients as it makes you memorable, but there are also strong reasons to remain a generalist.

Once you’ve decided whether you’ll have a niche, it’s essential to conduct a competitor analysis to see who else is operating in your space and how you can gain a competitive edge. Start by looking at who they work with, what they’re doing well and anything they’re not doing so well. You can then use these insights to shape your wider marketing strategy and business plan.

Read our recent article on ‘How to carry out a competitor analysis.’

As the old saying goes, ‘it’s not what you know, it’s who you know.’ Recruitment is a people business, and you’ll need a strong network of candidates and employers to be successful. If big networking events seem intimidating, start by having lots of virtual or in-person coffees. 

• Start by reaching out to your connections.
• Join an industry membership group like REC or ARC or general networking groups like LunchClub.
• Make sure to set yourself a goal of how many people you’d like to meet each month.
• Build reciprocity by making introductions for the people you meet as this increases the chances they’ll return the favour by introducing you to relevant people they know.
• Keep a record of who you meet, what they do and who would be a helpful contact for them.
• Practice your elevator pitch as you’ll repeatedly have to tell people what you do and how you make a difference to organisations.

As part of setting up your recruitment agency, you’ll also need to focus on your marketing. But, of course, all good marketing starts with solid foundations.

An excellent way to demonstrate your skills and build credibility is to create and maintain a professional website. Your website essentially acts as the shop window for your services. It’s often the first thing a prospective client will see before they reach out or if they’re conducting additional research after meeting or being referred to you.

You can use systems like WordPress, Wix, or Squarespace to create your website for free or at a reasonable price. 

Social media can be an excellent tool to help you find recruitment clients. LinkedIn is especially popular within the recruitment industry as it’s a great way to connect with candidates, headhunt talented individuals, advertise open positions and promote your services to employers. 

Most recruiters use LinkedIn, so you must be visible here too. You might want to set up a separate company page and make sure your personal profile is up-to-scratch. Once you’ve created strong profiles, you can then use LinkedIn to build your credibility by posting tips, insights and advice.

Once you start to build some momentum and bring new clients on board, you’ll then need to start charging and invoicing your clients for your work. 

There are many different pricing models within the recruitment industry, with some agencies charging a percentage of the new hires annual salary while others charge a flat fee. Before you begin working with a new client, you’ll need to decide and agree on payment terms upfront, and this should be part of your standard business contract.

According to UK Government guidelines, invoices across all industries must include key accounting and business information as standard. You must include:

• Key dates about the work: your deadline, expected payment, and the invoice’s creation.
• Information about your business: your trading name, address, contact details, website, and other vital information under the heading ‘supplier’.
• Information about the client: name, address, contact details and so on under the heading ‘client’.
• Itemised cost breakdown and description: what you’re invoicing your clients for.
• A payment reference: assign your invoices a unique identification number that shows clients which invoice they’re paying (you can use a simple number or labelling system).
• Payment information: specify which payment method you require, account details like a bank account and the total amount due. 

The easiest way is to create and send your invoices digitally using accounting software. With the Countingup app, you can create invoices in seconds, get notifications when you’re paid, and receive automatic invoice matching to help you stay on top of your bookkeeping. 

You may decide to take a deposit ahead of doing any work or to bill on completion. However, your contract should also set out payment schedules and milestones, such as 50% beforehand and 50% upon completion.

You should then send your invoices as soon as these payment milestones are reached.

Send your invoice as soon as possible after you finish the work for your client. The faster you send your invoices, the sooner you’ll get paid. 

Hopefully, your clients will always pay their invoices on time, but this may not always be the case, so it’s essential to have a plan in place. You should follow best practices for credit control and always remain polite when chasing late invoices. Quite often, it’s simply a case of miscommunication, system complications or forgetfulness.

Read our recent article on ‘Chasing late payments: what is credit control’ to learn more about best practices and increasing your chances of getting paid.

When you start your recruitment agency, it’s essential to keep on top of your business finances to make sure you have enough funds to reach your ambitions and get your business off the ground. Staying on top of things will also save headaches further down the line. 

The Countingup business current account makes it easy to manage your business finances from the start. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping. You’ll also be able to create customised invoices in seconds, saving you time to focus on running your business. 

Find out more here and sign up for free today.