How to start a recruitment franchise
Recruitment is booming. Find out how to cash in on the trend.
Setting up a franchise is not for the fainthearted – it is stressful, expensive and nerve-wracking. There are no guarantees of success but starting with an industry that's booming could be a help.
So this is our tip: recruitment is big business. Last year the industry had a turnover of around £23 billion in the UK alone and franchisors are eager to grab their piece of it. This is where you come in.
If you choose the recruitment business, you will be joining an industry which ranges from finance to catering, engineering to sales. And it encompasses everything from temporary work to permanent boardroom positions.
As far as franchising goes, there are broadly two kinds of recruitment on offer. At the commercial recruitment end of the scale, you should recognise the high street names. They cover a familiar market which handles work placement in a low to mid range pay bracket for both temporary and permanent contracts. Good examples are Travail Employment Group and Select Appointments, two of the largest franchisors in the UK.
The other side of the coin is executive search, or headhunting. MRI Worldwide is largest executive search company in the world and is the product of a merger between MRI of the US and Europe's Humana. But it is not a household name and you won't find it on the high street.
What is it?
The most common type of recruitment agency is one which hires out permanent, temporary or contract-based staff in office, industrial or catering jobs. The work is varied and people-based. It is a definite ‘supply and demand' industry. Your role is to liase between employers and employees with a view to finding a perfect fit. So when an appointment works out, the praise is twofold. But if it doesn't, the abuse can be double too.
In the beginning, your job will be selling yourself. For commercial recruitment, it is basically a process of cold calling, hopefully leading to face-to-face meetings and establishing contacts. And even when you have clients, you have to keep them while looking for more.
One franchisee said he has staff contacting companies between the hours of 10am and 12 noon, and again between 2pm and 4pm. All administrative tasks, including interviewing and organising advertising, are done outside these times. He added “there is a constant need to top up the pool of people in our client base. We do this by exclusively making visits and telephoning between those key hours”.
The executive search process is different. Meeting clients and using existing contacts will be the most important job. You will have to go out and canvas for support amongst clients and potential employees – particularly the former. No business exists without good customer relationships and a solid client base. As this is your business, that means your relationships and your clients.
In general, it is easier to attract people wanting jobs. With companies like Travail or Select, employees will come to you because they have heard the brand name — particularly if you have premises on a main street. A high street presence is not vital for a recruitment business but it can help.
In an executive search franchise, on the other hand, potential employees don't walk in off the street. You work within a sector, such as IT or finance, and actively seek out people by cold calling and asking for suggestions.
Inevitably at the start, you will have to do whatever needs doing to get the business going and keep it running. You should expect to juggle looking out for premises, talking to the bank, managing your team, hiring and training staff, all on top of acting as a recruitment consultant. And most of all, be prepared to learn.
Who is it suited to?
In common with all franchises, if you'd love to run your own business then this is the number one tick box for going into recruitment. Ideally, you would need to come from a senior management or sales background as this will give you the right business mindset to make the business work.
If your only motivation is money then this probably isn't the ideal area for you. Tony Mundella, franchise manager at Select, is wary of prospective franchisees whose primary concern is ‘how much will I earn?' Certainly there is money to be made – and it must be a motivating factor – but it cannot be the only one. First and foremost you are in business.
A certain type of person will do better in recruitment than others. You must want to succeed, be ready for a challenge and to work hard. This is doubly important as the need to instill this particular brand of enthusiasm in your staff is essential. Your own attitude to the business throughout the early days is vital.
A spokesperson for MRI Worldwide advises: “You have to go out and sell, take knocks but get up the next day with a smile on your face ready to start again. This is the only business where the product can turn round and say ‘no' – the sort of people who go into it have to be prepared for this.”
How much does it cost?
Commercial recruitment agencies like Travail and Select need to be staffed by at least three or four people from the outset. While you are out meeting clients, the office must be staffed and candidates interviewed. The office also needs to be easily accessible, near to the client base and the competition.
After the franchise fee has been paid and the property set up, staff and premises will be the two largest expenditures to come out of working capital.
There can be no cutting corners in these areas – you can't to do without staff and you cannot afford to be hidden in out of the way premises. Select specify you should have two consultants and an administrator/receptionist. Bear in mind this is a minimum and, with this number of people, you should be prepared to turn your hand to anything.
One of the Select franchisees started out in a business centre. Although this cut costs it was a disaster in terms of trying to get the agency going. They were invisible. It was only after moving to a busier part of town that the franchise took off.
Select estimate that full set up costs will be between £75,000 – 120,000. Banks are as a whole more open to lending to franchisees than fledgling businesses, so you won't be expected to put in all of this money from your own savings.
The initial franchise fee for exclusive rights to a Travial territory is £10,000 and includes approximately £1,500 worth of stationery and marketing materials. In addition you would also need a minimum of £15,000 working capital and support from a bank.
For executive recruitment, the priorities are different and expenses lower. An MRI Worldwide franchise can be set up by one person from a serviced office in any part of town. People do not walk in off the streets to see you, the majority of the work in the early days will be going out and selling yourself as a recruitment consultant, making contacts.
Whatever franchisor you choose to opt you should be mindful of charges that may not be completely obvious at first, such as paying the franchisor for sorting out temps' payroll – these are ongoing costs which will not be settled with the initial set-up fee.
One franchisee suggested getting your accountant as well as your solicitor to go through the contract just to make sure you are aware of all potential expenditure.
The franchisees we talked to agreed that the estimated set-up costs were realistic in their experience – though this didn't necessarily help the inevitable sleepless nights.
How much can I earn?
As Steve Mills, franchise director at Travail, comments, this is rather a ‘how long is a piece of string' question. All franchisors offer typical figures based on the performance of their existing franchisees but there are no guarantees.
Travail offices predicts that many of its franchisees will exceed £1 million turnover each year and once you are into this sort of earning territory you will have the option to expand further.
Like any new venture there will be a period when you sit tight and wait for the profit to come. The turnaround period obviously depends on how successful you are in your first couple of years. But until then you will have to support your agency from personal or borrowed capital, so there is a strong incentive for making the turnaround short.
Select offer examples of franchises which in their third year turned over £240,000, their seventh £460,000 and in their ninth year £1.6m.
MRI Worldwide said that their best ever startup in MRI had a turnover of $1 million in the first year. This is exceptional, said the spokesperson, but it can be done.
However, be aware that franchisors often build performance targets into their contracts. Chris Wormald, a partner in legal firm Eversheds and head of its London franchise group, warns that this is particularly true of recruitment where you are given exclusivity to a certain area.
Franchisees should be aware of any performance targets before they sign a contract.
“The franchisor will often make provisions to cut down the geographical territory or to take away exclusivity rights to the area if they are not met,” says Wormald.
This is quite a standard way for the franchisor to protect it interests.
Tips for success
The recruitment agency is cash-intensive and this could prove the most serious risk to your business in the early days. Temps are paid on a weekly basis. But you will invoice your clients on a monthly basis and they may not pay immediately. So even when business does start to come in, you will be facing a shortfall.
It is very easy to run out of money as your capital will be stretched to the limit at the beginning. Good franchisors offer support and advice to help you through this. Select offer 60 day factoring of all debts to ensure smooth cashflow.
One franchisee commented that the advantage of working for a well-known recruitment brand is that banks are more likely to be sympathetic when you ask for money.
You may find it useful to consider the franchise approach in comparison with our guide on how to start a recruitment agency business from scratch.
David Costello, a senior franchise manager at NatWest said he believes recruitment is a good sector at the moment.
“The service sector is easier and less expensive to set up in than others – and it is less risky than the retail sector, for example, which is pretty much flat at the moment. Recently we've seen a new wave of recruitment agencies.”
The healthy state of the industry means that it is the decisions you make not the market that threaten you as a new franchisee.
As Tony Mundella of Select explains: “You are only as good as your staff. Not only do you have to get good people in, you also have to keep them.” Where this is done badly, he believes, it is the most serious threat to any recruitment franchise.
The employment industry has a high staff turnover, so you must try to create a positive working environment. You need to motivate your consultants by making sure they enjoy the work and find it challenging, as well as offering competitive salaries and commission.
One big advantage of this sector is that it has some protection against recession. When unemployment is low, the industry concentrates on offering permanent staff. Firms want good, long-term staff and can afford to pay them – you can supply that need. Then, in times of high unemployment, you will do much more temporary and contract work on the basis that firms can only afford to hire on this basis. Tony Mundella calls this ‘a buffer zone against risk'.
Chris Wormald of Eversheds says there are a number of legal pointers you should be aware of which to smooth the path to a signed contract. They are not exclusive to recruitment franchising but should nonetheless be noted. “As part of your contract you will need to register under the employment agencies legislation. This is required of both the franchisee and franchisor. The franchisors' contract will be a standard one for all franchisees and they will not moderate it.”
It isn't enough to just think you can enter the recruitment sector, you have to believe in the job. As mentioned before, it is extremely people based and you will be hands on in the office on a day to day basis. You have to be prepared for what might come as a bit of a culture shock. If you can't imagine yourself working in this way then don't. It isn't likely to go down well when working closely with a small team.
You must also closely follow the brand of the franchisor. When you choose to become a franchisee you are acknowledging that you want to be your own boss. But you are also building on the established reputation of the franchisor. Having a franchisor behind you isn't like having an employer again. You are running your own business and accordingly can't expect to be treated like an employee.
If staff leave and business is difficult, you are on your own and you have to sort it out, which will probably lead to long hours. But at the same time, you will be more flexible, have a greater degree of self-satisfaction and more freedom. Whether you want this is perhaps the most important question you should be asking. But it is important to remember that while mistakes must be solved on your own, the triumphs will be wholly yours as well.