For a small business, cash flow is like oxygen. How much cash you have in the business determines how much runway you have to operate, and it is imperative for the business to be in the air before the tarmac ends.
The way recruitment agencies work with clients seeking permanent full-time talent is that once a candidate is placed, the agency will receive a percentage of the annual base salary from the client, not including bonuses, shares, or commissions.
Industry standards are 20% but it varies from agreement to agreement. This is different for executive searches where fees are generally higher, and searches are retained. For this article, I am not referring to executive searches.
Ultimately, recruitment agencies work for free on a search unless they successfully place a candidate. This fee however is not guaranteed as often roles can be lost to competitors, cancelled by the client, or filled through an internal applicant.
A recruitment agency only eats what it kills so if you are delusional about your delivery, hunger pangs will kick in quickly.
This is what the process often looks like for a permanent hire:
Day 1: Client releases requirements.
Week 1: Agency to find, qualify, build relationship with 2-3 top candidates.
Week 2 & 3: Candidate review and interview process (Approximate and can take longer).
Week 4: Offer is prepared and presented.
Week 5 & 6: If the candidate accepts, they generally must provide 2-3 weeks’ notice to their previous employers.
Week 7: Candidate starts. It is best practice to send an invoice after one week to ensure that everything is copasetic.
Week 7 (end): Invoice sent.
Week 11: Invoice is due as 30-day payment terms are in effect.
Week 13: Invoice is paid out in accordance with client’s payment cycle.
Week 13: Oxygen…. but with a caveat.
Recruitment firms like ours, offer a 90-day money back guarantee for client protection in case things don’t work out with the candidate. This means if you breathe in all that oxygen prematurely, and the placement falls through within 90 days, you can’t pay the client back in carbon-dioxide.
Week 18: Money clears and the air is safe to breathe (sigh of relief).
That is approximately 5 months before the money is 100% cleared. That is 5 months before you receive your first pay-check, and this is assuming that you have already acquired your client which is arguably the most difficult part of the process.
Keep in mind, the candidate doesn’t always accept the offer, and if you have to rework the role, add the first 4 weeks back into the mix which brings you to:
Week 22: Money clears and the air is safe to breathe (extra deep sigh of relief)
Lesson 1:
a. Ensure that you have a financial plan that gives you extra runway to sustain approximately 22 weeks i.e. 6 months of making no money.
b. Plan for unforeseen expenses, licenses, and insurance.
c. Get thrifty, meal prep for the week and pick up inexpensive hobbies like playing the harmonica. You can get one for $19.99 off Amazon but as disclaimer, there is a high likelihood you are going to piss off everyone around you.
d. Drink lots of coffee, work like hell, believe in your delivery and then most importantly back it up.
And it’s okay to say some prayers along the way 🙂
Kumail Ahmed