Do's and Dont's of Starting a Recruitment Agency

So, you're thinking about starting your very own recruitment agency? Congrats! You’re about to join a club where every day feels like a roller coaster ride through spreadsheets, cold calls, and the occasional existential crisis. But don’t worry—we’ve got your back. We’ll guide you through the essential steps, the “nice-to-haves,” and the outright “what-were-you-thinking” pitfalls of starting your agency. Spoiler alert: it’s not as scary as it sounds, but it’s also not a walk in the park with a latte in hand.

The beauty—or madness—of running a business is that there are countless ways to do it. You can be the smooth operator with slick systems, or the chaotic genius who thrives on last-minute miracles. Whichever your style, know this: Rome wasn’t built in a day, and neither will your agency be. Everything you've learned so far has been like collecting tools in a video game—you’re just adding new skills to your inventory. So, while the depths of business know-how may seem endless, the upside is there are infinite ways to win. Just start! Don’t let the daunting prospect of launching an agency stop you from taking that first brave step. After all, what’s the worst that could happen? Okay, don’t answer that.

Let’s dive into what you really need when starting out, what’s optional, and what’s just a big waste of time.

P.S. why should you listen to us? Well, we have established our own business and interact with small to medium-sized recruitment agencies on a daily basis - so we know what exactly it is that they need.

1. Market Research

First off, let’s talk market research. You know, that thing people say is boring but is actually crucial if you don’t want to end up recruiting for an industry no one cares about (like, say, fax machine repairmen). Rule number one: find your niche. “Riches are in the niches,” as they say. Sure, it’s cheesy, but it’s true. There’s a world of difference between marketing yourself as an “IT recruiter” versus the hyper-specialized “AI recruiter.” Less competition, more targeted clients, and suddenly, you’re the go-to person in a hot field.

Pick your market wisely—do you want to be chasing roles in traditional print media (hello, 1995!) or booming industries like social media and tech? Yeah, I thought so. Choose the rising tide that lifts all boats.

2. Business Plan

Now, about that business plan. There are plenty of templates out there that blab about “market share” and “revenue forecasting,” but the real secret sauce? Understand the basics of business. Think of it as your business GPS—without it, you’re just driving around in circles, burning fuel (and cash).

Know your numbers!

One of the most surprising things you'll learn when starting a business is how many people have no clue about their own finances. I mean, you wouldn’t believe how many folks think having a positive bank balance means they’re profitable. Newsflash: it doesn’t. You need to know your topline revenue (that's the money coming in), your operational costs (like infrastructure, software subscriptions, marketing, taxes), your cash flow (money left after all expenses), and even that “office snack budget” that somehow spirals out of control.

And here’s a pro tip: just because you had a good quarter doesn’t mean you should go wild with spending on fancy office plants or Friday brunches. Save some cash for the rainy days. Recruitment is a volatile industry—one minute you’re on top, the next you’re scrambling for leads. There’s no shortage of free resources out there—YouTube, podcasts, books—so start learning now.

Your most valuable asset

Apart from knowing your numbers, the most important part of running a business is to have customers. A starving market. That’s why your network is going to be your lifeline when you start your agency. Before you dive into the deep end, start building up your business development skills and connections while you’re still working at someone else’s agency. Trust me, the last thing you want is to open your doors on day one and realize you have zero clients and your phone is about as active as a ghost town.

Now, if your network’s looking a bit sparse, don’t panic. You’re not doomed; you just need to put in the extra effort. This means more cold outreach, more LinkedIn connections, and a lot more “networking” (or as I like to call it, making small talk over mediocre coffee). Clients generally aren’t obsessed with the size or reputation of your agency—they just want someone who can get the job done and offers a solid incentive model that minimizes risk for them. And the beauty of small wins? They boost your confidence and keep you motivated to keep pushing forward.

Continuous learning

Lastly, you should be ready to be a student for life - the business world doesn’t stand still, and neither should you. Running a recruitment agency means you’re going to wear a lot of hats—marketer, accountant, HR, therapist (for your stressed-out candidates), and more. There are tons of resources out there—YouTube videos, podcasts, books, webinars—that can help you get up to speed on the basics of business. Never stop learning. Your business plan isn’t a one-and-done deal; it should evolve as you learn more about your market, your clients, and even yourself.

Think about the end before the beginning

This might sound counterintuitive when you’re just starting out, but you also need to think about your exit strategy. Maybe you plan to sell your agency one day, or perhaps you see yourself passing it on to someone else. Having an end goal in mind can shape how you structure your business from the outset and keep you aligned with your long-term vision.

To sum it up, your business plan is your guide, not your gospel. Use it to keep yourself on track, but don’t be afraid to adjust your sails when the winds change. With the right planning, a solid network, and a bit of financial savvy, you’ll be on your way to building a successful recruitment agency that not only survives but thrives. And who knows? Maybe one day you’ll look back on those early days and laugh. Or at least not cry.

3. Company Structure

Ah, young warrior, listen well, three paths before you, each a tale to tell.

A solo journey, strong and true, Where every step, depends on you.

A partnership, like yin and yang, balanced strength where two hearts sang.

Or gather a team, a mighty force, united in purpose, set on one course.

But heed my words, as time will show, It’s not the path, but how you grow.

Yesterday is gone, tomorrow yet unseen. Today you choose, where you have been.

Choose with care, and choose with grace, For in this moment, you set your pace.

Well, that was my (bad) Master Oogway impression to tell you, young warrior, to choose your company structure wisely. It’s not a make or break for your business if you get it wrong, but it will be one less thing to worry about if you get it right from the start. Remember you can always start solo and scale up, but it is much trickier to scale down.

4. Understanding Finances

Now, onto finances—the backbone of any successful business. As a recruiter, you might be besties with your ATS, but now it’s time to make Excel your new BFF. Set up costs, cash flow, profit margins—you’ll need to be all over this like a squirrel on a nut.

Setup costs? Plan for at least six months of living expenses, not just three.

Because guess what? Clients don’t magically appear overnight, and sales cycles in B2B are slower than watching paint dry. Budget conservatively and avoid unnecessary panic when things don’t go as planned (they won’t).

You can use the below table to estimate your set-up costs:

You might have heard the advice to keep aside 3 months of living expenses as a safety net when setting up your agency. Well, I’m here to tell you that’s the bare minimum—double it to 6 months. Why? Because the recruitment industry, much like a game of Tetris, can be unpredictable. Clients can drag their feet, sales cycles can stretch longer than a yoga instructor on a good day, and payments can get delayed for reasons beyond your control. Having 6 months’ worth of expenses in the bank means you’re less likely to panic and pull the plug on a business that might just need a bit more time to find its footing.

Let’s break the terminology down.

• Revenue: This is your top-line number, the total amount of money coming in from your clients before expenses.
• Net Profit/Income: This is where you start to see what’s really going on. Net profit is your revenue minus all the operational costs—think infrastructure, software subscriptions, marketing expenses, taxes, and more. It’s not just about how much you make; it’s about how much you keep.
• Cash Flow: Cash flow takes the net profit a step further by considering all cash activities, like accounts receivable and payable, payments for long-term assets, and any financing activities like taking on debt or raising equity.

Cash flow is king because it tells you how liquid your business is—whether you can actually pay your bills when they come due.

In business, the devil is in the delays. One of the most overlooked aspects of running a B2B business is the waiting game. Sale cycles can drag on, and even when you do close a deal, payments might not come in for another 2-3 months. This is why that 6-month buffer is crucial.

To give yourself a little extra breathing room, consider adding an additional 20% to your initial set-up costs. This cushion helps you navigate unexpected expenses or those “oops, didn’t see that coming” moments that are bound to pop up.

A key takeaway here: always keep your eyes on cash flow.

Revenue might tell you how much you’re making, but cash flow tells you how much you can actually use. A business can survive with slow revenue growth, but poor cash flow management can sink you faster than you can say “overdraft fee.”

5. Streamline Your Operational Systems

There are more software tools out there than you can shake a stick at, all claiming to make your life easier. And yes, they can! But the key is to pick and choose wisely. Start with what you know least—like invoicing or admin—and then tackle the repetitive stuff like CV formatting and candidate screening. Your main goal should be to free up time for what really matters: building relationships. Because at the end of the day, people hire people, not bots. At least, not yet.

If you are unsure of what tools to get to help you optimise your operational systems, we have a helpful guide on which AI tools are the best for streamlining different stages of the recruitment process.

6. Documentation

Documentations are good to have, but let’s be real—no one reads the fine print. Nonetheless, you’ll still need terms of business, privacy policies, and other legal docs. A tip is to not blow your startup cash on lawyers right away; use tools like ChatGPT or contract software for basic drafts. Save the big bucks for when your business is booming, and your AI-generated contracts start to make you lose sleep.

7. Insurance

If you’re anything more than a one-person band, you’ll probably want some insurance. Or at the very least, make sure your terms cover your backside (the legal term is indemnify, but let’s keep it simple).

8. HR Team

Starting small? You don’t need an HR team right away. You’re already a recruiter, so wear that hat proudly until you’ve scaled up.

9. Accounting

Got cash to spare? Great, hire an accounting firm. If you’re just starting out though, we recommend trying out an accounting software like QuickBooks until you are comfortable investing in an accounting firm. It’s like having a mini accounting team in your pocket—without the snazzy suits.

10. Web Development

Unless you’ve got coding skills or a burning desire to learn, it’s usually best to hire someone from Upwork or Fiverr to set up your website. If you care about aesthetics (and you should), consider also hiring a designer. A functional site is a must, but an ugly one is just bad for business.

Conclusion

Making do with ‘just the basics’ will serve you well in the short term, but all businesses, large and small, should be equipped with systems and software that prioritize productivity in the long term.

To recap, the essentials are:

• a) doing your market research,
• b) having a solid business plan,
• c) understanding your finances.

If you have more capital or have a solid cash flow, you can start:

• a) streamlining your operations,
• b) thinking about your company structure,
• c) ensuring your website looks good.

Lastly, these are not necessary at the start, but once you have a solid business up and running, you can start thinking more about:

• a) your legal documentation,
• b) insurance,
• c) accounting.

We hope that this article provides good insight and a foundation for you to understand what is actually essential in starting a business. So arm yourself with this knowledge and go forth into your first business venture, young grasshopper.