This article has been provided by Stewart Roberts, Commercial Director at Total Back Office Solutions Limited for our Recruitment Start-up Centre.
Due to the nature of our services and the reputation we’ve developed, we’re called by recruiters who are or are thinking about starting up a new recruitment agency on a weekly basis.
Usually they’re calling with one or more questions they want to be sure they know the answers to before they take the plunge.
That’s all pretty sensible; when starting up any new business, making sure you have everything lined up is important.
But, while we answer a lot of reasonable questions each time, we also hear questions which only come up because someone’s told them something incorrect – maybe a friend, a business partner, or they’ve read something misleading online.
Sometimes we don’t hear one of the usual questions and we realise they’ve been told they can ignore something they shouldn’t.
We’ve collected eight beliefs a lot of new start ups have that are wrong enough to cause trouble – so this is your chance to find out ahead of time!
“I can buy a limited company for £15 from the internet”
Alright, you got us – you CAN do this. But you shouldn’t; the more you spend, the better quality the paperwork you’ll receive. If you’re missing your Articles of Association, Share Certificates, or your Memorandum of Incorporation, you could be in for trouble down the line.
“The bank is offering me free banking for a year”
Again, this may be technically true, but the difference isn’t small. “Free banking” as part of an introductory deal usually means there are no fees on outdated processes like writing cheques, paying them in, telephone banking… and, if you’re lucky, the very basics of online banking.
Anything more advanced – allowing more than one online user profile, managing multiple accounts, international payments, faster payment processing – will still cost you and you need to take those fees into account. And yes – you’ll want almost all of those extras, and all of them if you do any business overseas.
“I have some contracts from my last agency”
We hear this one more than any other – and it’s the most dangerous. Using contracts from a previous agency is theft; it also runs the risk of using contracts that aren’t up to date or where they’ve slipped on compliance.
If you left your previous agency, do you really trust their work so much? Buying a fresh, up-to-date set of contracts from a reputable provider is almost an essential, and is definitely a wise investment.
“I don’t think I need any kind of insurance”
This one really should be self-explanatory, but we hear it enough to realise it isn’t. Let’s begin by noting that some deals will require a minimum level of cover; talking to a broker you trust gives you a chance to find a good starting level of cover and get everything in order.
Don’t start out paying more than you have to; you can always increase your insurance as the need arises.
“I need my agency to be a member of an association“
Being part of an association definitely can help – if you’re going to take full advantage of their services. If you aren’t, though, you should think very carefully about whether you want to spend the money.
There’s no legal requirement to join an association, so bide your time and sign up when it gives you an advantage.
“I don’t see why I should be VAT registered”
It’s not a legal requirement to register for VAT until turnover hits £82,000, but for a recruitment agency it makes life much easier and gives a boost to cash flow.
There’s also the optics question – a business with a VAT number will always seem more firmly established and more reliable than one without.
“I can claim my home as an office expense”
This is another one that’s partly true, but wrong enough to cause trouble. If you’re working from home then, yes, you are eligible for an allowance from HMRC for certain costs.
However, those costs have to be additional to normal living expenses, so mortgage or rent payments and utility bills aren’t eligible, and the allowance is set at £4 per week or £18 per month.
“I have heard I can take money from my company as dividends”
It’s true that taking money as dividends is the most tax efficient way to draw money from your company, but dividends can only be drawn from profit. During that period where your business is recouping costs, dividends drawn are instead classed as Directors Loans and will need to be paid back soon or incur additional taxes.
Since April 2015, dividends have also been taxed more than before, so the advantage even once you’re in profit is reduced.
TBOS works with many new start-up recruitment agencies to give them the best possible start and ensure everything is set up correctly. We take the time to give every new client the best possible advice and make sure they know the risks when starting out. We want to help our partners grow into profitable agencies.
If you want TBOS to help with your own start up, then please contact the TBOS offices on 0845 881 1112 or email us at enquiries@tbos.co.uk. You can also contact us for information on our flagship TBOS Complete and TBOS Freedom programs, or just to find out more about how we can help.
