You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your recruiting business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a recruiting business?
This business can be started as a sole owner/operator. Here are the basic requirements for this business:
- A business license (around $300)
- Form an LLC (around $500)
- Business cards ($50)
- Promotional materials ($100)
- Service agreement forms ($25)
- Space to work from (can be a home office or allow $500 per month rent)
- A telephone ($50 per month)
- A computer ($500)
- Software (cloud services are $50 to $100 per month)
- An Internet connection ($50 per month).
- A business banking account (free)
- An accountant (if you are not going to keep these records yourself)
If you plan to sell a large amount of items, you may need a storage space for your inventory. You can find storage spaces for around $75 per month.
This business can easily be started for less than $2,000.
What are the ongoing expenses for a recruiting business?
The monthly expenses are rent, telephone, Internet connection, promotional materials, conference/convention attendance fees, and other marketing expenses. A simple one-person operation may have expenses of less than $1,000 per month.
Who is the target market?
The best clients are larger organizations who have a constant need to fill a vacancy and have steady employee turnover at the senior management levels.
The other side of the business is recruiting top talent and having a strong database of professionals to draw upon for any placement opportunities that come up.
How does a recruiting business make money?
If the organization decides to hire a person brought to them by a recruiter, then they will pay a commission to the recruiter, which is a percentage of the new hire’s salary as compensation. Another business model is possible if the recruiter is paid a monthly retainer to search for potential employees, regardless of whether a new hire is found.
To help get new business and clients, some recruiting agencies will allow clients to hire job candidates on a contract basis and pay the recruiting agency a variable commission based on the number of hours worked under the contract.
By being successful in these efforts, recruiting agencies create repeat clients.
How much can you charge customers?
The typical commission for a placement is around 10% of the annual salary for the position or the equivalent of one month’s pay.
Some organizations like to outsource some or all of their recruitment efforts to companies that specialize in doing this work. In this case, the recruiting agency will have a contract that provides for the payment by the organization of a monthly retainer for the ongoing recruitment efforts. This monthly retainer can be a few thousand dollars to many thousands per month depending on the extent of the recruitment activities.
How much profit can a recruiting business make?
An average recruitment and placement can take between 30 to 90 days. If the annual salary for the available job is $100,000 and the commission for the placement is 10%, then the revenues for a successful placement would be $10,000 minus the expenses. If the recruiting agency is a simple one-person operation and only one position is filled during each three month period this would create $10,000 - $3,000 = $7,000 in net profits or about $28,000 per year.
Many recruiting agencies make multiple placements per month, so the profit potential for this business is very attractive.
How can you make your business more profitable?
The easiest way to increase profits is to place people in positions that pay higher salaries. Some recruiting agencies specialize in placing C-level senior management. The positions of CEO CFO, CTO, COO, and CMO all command very high salaries. Recruiting companies who successfully place people in these C-level positions make significant commissions.
Organizations like to work with top performing recruiting agencies to fill C-level positions because typically the people who are qualified candidates for these jobs are already employed by other companies. By working with a recruiting agency, the entire process can be kept confidential until the person and the business that is hiring them agree to the terms of an employment contract.
Recruiters who make themselves available to talk with potential placement candidates after work hours and on weekends increase their chances of finding good candidates. This is because many prefer to have confidential conversations about taking a new position from their homes, instead of taking such calls at the work site of their current employer.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your recruiting business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a recruiting business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Recruiting businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, and service level expectations. Here is an example services agreement.
As of the time of this writing, there are no federal licenses required to become an independent recruiter. However, the practice is subject to the same legal considerations for anyone responsible for hiring new talent. If you're not careful, it is possible to unintentionally ask unlawful or even discriminatory questions to potential candidates. Adhere at all times to federal discriminatory laws regarding race, ethnicity, religion, marital or family status, physical or mental disability, gender, age, and sexual orientation.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a recruiting business
Marketing your business requires networking with the human resource managers of many companies. It also involves lots of “cold-calling” of potential employees. Email marketing is possible if you build up a list of contacts.
One way to meet the human resources managers of larger corporations and their staff is to attend employment trade shows. Going to business conferences in the industry sectors that you are interested in working with is another good way to make personal contacts with potential employers and find good candidates for employees that might need placement.
It is important to build long-term relationships because both employers and employees may not have a current need, yet you will want them to call you if a need arises in the future.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
The best way to build a steady flow of business and keep previous clients coming back for more is to be very successful in making placements. If both the employees and the employers are happy with the results of your work they will use your services again if another need arises. They can also help by spreading the word about your successful efforts to other professionals and organizations.
A report on NPR notes that up to 80% of the job vacancies are filled without the available positions being published. The candidates are found through various networking relationships including by using recruiting agencies.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Recruiting Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
This business is good for people who like to reach out to others, enjoy talking on the phone with them, and want to support the development of those with professional careers by placing them with organizations looking for top talent.
What happens during a typical day at a recruiting business?
There are two facets of this business. The first major activity is finding organizations that will agree to sign a contract and pay a commission fee to a recruiter who brings a qualified professional person to the organization’s attention that the organization subsequently hires.
The other side of this business is for recruiters to find qualified professionals and build up a database of those people that might be interested in a potential placement by the recruiting agency. These professional workers may not be actively looking for a new job and may be currently employed. However, in the interests of career advancement, they may consider taking a new position, which offers better pay and greater benefits than the current job they already have.
Most of an agency’s day will be spent sending in résumés of qualified candidates and corresponding with both clients and businesses.
What are some skills and experiences that will help you build a successful recruiting business?
Recruiting is a “people” business. It is important to understand the needs of both the employers and the employees. The goal is to become a good matchmaker that places people in employment positions where they are most likely to succeed. It is important for the employer to be satisfied with the work that they do and the employee to like the new job.
It helps to have previous experience working for another recruiting agency, before going out and starting one of your own. Being an expert at networking with business professionals and organizations is a necessary skill. Having an extensive list of business contacts gives someone an advantage in starting up a new recruiting agency.
What is the growth potential for a recruiting business?
Many recruiting agencies focus on a local area as well as people who are willing to relocate. A recruiting agency also has the potential to expand nationally and internationally.
One of the largest recruiting agencies is the Robert Half Agency, which specializes in placing accounting, finance, and technology professionals. The company has over 400 offices worldwide in many different countries. During 2015, the Robert Half Agency had revenues of over US $5 billion. The market valuation in January 2017 for the company is US $6.65 billion. The stock trades on the New York Stock Exchange as RHI.
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a recruiting business?
One person worked for eight years at a recruiting agency before starting his own company ABrecruit. He recommends using the database software offered by Chameleoni, which can be started for free and as the activities increase, is a low-cost way to manage the recruiting agency.
How and when to build a team
After having some success with initial placements and earning enough commissions, it is possible to expand staff to increase the placement activities. Each new staff member can concentrate on expanding the opportunities in a particular industry sector or working with a certain type of professional. By using this strategy it is possible to build up a good reputation from efforts that are focused on gaining useful expertise and contacts in a particular industry.