Let’s be upfront about backing!

Entrepreneur John Buckman, the chairman of Recruit Ventures explains why new recruitment businesses face a cashflow crunch – and how to avoid it

If you’re starting your own business you need backing in several ways. There’s the back office for a start. The systems you need to operate efficiently and competitively especially in the recruitment industry. There are loads of other things too – like your branding, and your marketing plan. They’re all better executed with the backing of professionals.

But of course, at the top of the list comes the money. The financial backing. And when I say let’s be ‘upfront’ about it I’m not talking about simply having the money ‘upfront’. Although that’s always good.

I’m talking about giving you some upfront and honest information about getting the financial backing you’ll need.

Interest rates may not be the highest they’ve ever been, which is good – if you’re borrowing. It doesn’t, however, mean that, no matter what their advertising says, the banks are falling over to lend to new business start-ups.

The problem is that going elsewhere often reveals that other sources of finance can be more expensive than the banks.

You’ll have your own credit scoring to think about too. I’ve written about this before, but there is the added trap that sometimes, confident that you’re a good risk because you have no debt, you come unstuck simply because you have no debt. It can feel unfair, but it’s how the system works.

But let’s be positive. You’ve got somebody interested in backing you. Now comes the issue of explaining to someone who knows about finance, but doesn’t necessarily understand recruitment, just how you’re going to need help.

How to absorb start-up costs

Absorbing the start-up costs is pretty much standard across any business sector. You’ll need to fund premises, computers, a car, stationery and all those other things that make an office tick. And it will all have to be paid for, in part at least, before you see any income.

Cashflow is not exactly unique to recruitment either. Getting the timing right between income and expenditure is central to any business. But will your backer understand some of the intricacies of recruitment? Things like the ‘temp trap’. That’s the one where you have to pay temps before the client pays you. It’s a cashflow issue that’s hit many a new recruitment business. Temps (understandably) want to be paid weekly, and most client companies want 30 day terms with you.

It can cause a problem, and it can impact on your, new, image and reputation. Fail to pay the temps and you’ll lose jobseekers as customers. Lose the jobseekers (who will probably damage your reputation further by complaining to the employers as well) and you don’t have people to offer, so you lose the employer clients.

Now comes the really sticky one. If the cashflow goes wrong you could find yourself short of cash to service the very loan you took out to start up. And that causes real problems. Because now your ‘partner’ wants to get involved in the business to sort how to get their money. But it’s your business now, and they don’t understand it. And you didn’t do this to have a ‘boss’ telling you what to do, ever again!

My advice? Over and above all the other things you need to start your own recruitment business, get your funding sorted. Get it sorted first. And get it sorted with someone who knows about recruitment and how it works. I can’t be more upfront about backing than that!

John Buckman is chairman of Recruit Ventures and a true entrepreneur himself. Having launched and grown many successful businesses especially within the recruitment sector, John’s offers advice and support to others in the industry considering setting up on their own. Find out more at www.recruitventures.com or email info@recruitventures.com

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