Perhaps you are thinking about launching your own recruitment consultancy. Whether your business is temporary or permanent staffing, cash flow is vital. There are multiple options available to fund your start-up and investors may be all too keen to help you. Lets get behind investment jargon and take a look at the short and longer-term impact of various funding options.
Assuming your business plan is realistic to conservative and comfortably covers your living expenses, start-up investment and a minimum 6 months of cash-flow. Self-funded is often considered the safest bet, but really boils down to your appetite for expansion. Before you launch your business, try to enlist an advisor, or ‘Critical Best Friend’ who will give you reliable advice that serves your best interests.
Banks may have been a closed shop for small business loans in the last few years, but they remain open for business for the right combination of personality, business plan, understanding of your market and ability to convert current clients. Going through a bank can be a good way to get advice on accessing government schemes for entrepreneurs such as the Enterprise Financial Guarantee (previously known as Small Firms Loans Guarantee Scheme).
Early Stage Equity Investment/Seed Funding
Provided by a range of investment providers and private individual investors. Such offers can be flattering as they are usually made based on your reputation and/or the strength of your business plan. Many have built highly profitable businesses with the right backer. The ‘right backer’ being key as you will likely be required to put some funding in yourself, either as a salary sacrifice and/or less draw of profits. Critical to any backer is risk, which may well involve your personal assets. Make sure you have a good relationship with your backer and be fully aware of the small print. The share structure can make you a minority and any repayment terms can be onerous. Watch out too for unmet promises and differing expectations. Determine how active your backer will be beyond finances and look for trustworthy advice, a complementary skill set and connections.
You could syndicate the funding through friends, family, angel investors and others. Crowd funding is low risk for investors and it can be simple and quick to raise initial capital. Conversely as each investor has limited skin in the game as the equity is fractured, they are usually passive. This can be good if you virtually full operational control, but what’s gained can often be lost through the added value a well-chosen ‘active’ investor should bring through advice and connections.
Venture Capital Finance and Private Equity
Venture Capitalists, on the other hand, typically pool money from different sources and generally invest in later stage companies that have already established stability and success, and invest in need of at least £500K to £1M (Private Equity having much larger amounts available for suitable businesses). Again it boils down to your growth ambitions and background, but it might be worth seeking VC funding when you are established and looking to scale.
Angel Investors often invest in start-ups unable to get financing from alternatives such as VC or private equity institutions and in some cases banks. Most early-stage ventures require small amounts of money, typically less than £200K and Angel investors can provide this in small instalments; using their own personal funds or as part of a group. They will peg expected returns against industry norms. As with any investment get qualified advice and don’t give away equity too readily or cheaply at the start, as you could find yourself de-motivated later down the line.
Invoice Factoring & Invoice Discounting
Major banks and factoring firms won’t factor small numbers (1-25) of contractors, which has sadly led to many recruitment owners curtailing their ambition. A raft of smaller factoring businesses are able to bankroll payments, which help start up recruitment business who have temps or contractors. These companies have different rates and reputations. Make sure you get a good recommendation.
Whatever you decide as your funding platform, make sure you know the terms, management fees, interest rates, management control and expectations of returns are aligned. And remember that many of the successful businesses you see today were launched with a credit card and a lot of guts!
Liz Kilford’s career has spanned HR, Training and Recruitment in the last 20 years: from working as an HR Manager for corporate blue chips, building an HR business unit for a boutique recruitment firm and supporting some 100+ individuals to launch their own recruitment business, through a franchised platform. Now Managing Director of Networks 3R, Liz together with her business partners has launched an accessible and flexible platform to give you everything you need for a successful recruitment business. Operating your own recruitment business with a brand that not only reflects your industry, but your personal and professional values can give you the lifestyle choices you desire now, whilst creating a capital asset for your future.
For confidential recruitment business start-up advice and training contact:
Liz Kilford, Managing Director, Networks 3R, 0044 203 291 3827, email@example.com