Let's start-up a CUK recruitment agency

[financial analyst]

Thanks for your comments. A couple of points in response:

The main issues already raised are if contractor brings in work outside of the co-op, what fees are due.

As I said in post #1 and post#12 I have not suggested a Co-op.

I'm simply suggesting that we could own a recruitment agency and share in any profits as shareholders.

There is no question of anyone not pulling their weight as no-one would be under any obligations to the agency, and no-one would pay fees to anyone regarding this. The agency would earn fees from margin on placements in exactly the same way as every other agency that any of us have worked with.

Each shareholder (i.e. us) would have a simple choice of working via another agency and never seeing any of the margin that is subtracted before the Contractor is paid (as it goes (after costs) to whoever owns the agency), or working via this agency and potentially getting some back as a shareholder.

You may well be whingeing on about being ripped off on margins, but this time about your OWN company.

Quite the opposite!

I would want the agency to operate on a commercial basis, and to make a net profit that can be distributed to shareholders; of which I would be one.

Again, if whichever agency places me is going to make a profit out of me, I would prefer it be the agency that I partially own!

Despite that, I genuinely wish you well on this.

Thanks. It was just an idea, but with further thought and comments on here it does seem to have some traction.

[Wanderer]

I'm simply suggesting that we could own a recruitment agency and share in any profits as shareholders. There is no question of anyone not pulling their weight as no-one would be under any obligations to the agency, and no-one would pay fees to anyone regarding this.

Well I'm glad to hear that because it would be illegal for an agency to charge workseekers.

I would want the agency to operate on a commercial basis, and to make a net profit that can be distributed to shareholders; of which I would be one.

So the contractor is at the mercy of the director of the agency to pay out a dividend (to the contractor personally, rather than to their LTD) as, when and if they see fit. This may tip a contractor into being a higher rate taxpayer and maybe they don't want that. What if the agency decide to pay annual dividends but then the company folds and the contractor gets nothing? Sounds too pie in the sky to me - I would prefer that the agency just charged a minimal margin to cover their costs so the money goes to my LTD straight away.

I think Contractor Club have a much better model and you would be reinventing the wheel. Am I allowed to linky to that?

[evilagent]

hi FA,

I was looking at this as a contractor-friendly venture, maybe that's why I misread it as a co-op. Apologies.

If you're going to run an out-and-out recruitment agency, where the beneficiaries are the shareholders, then you have gone over to the dark-side.

In order for the company to fulfil itself and be profitable as possible, you would have to squeeze the margin of non-shareholding contractors to get your dividend from.

Do you anticipate having some USP to distinguish yourself from other agencies?
Maybe a fixed, transparent margin, so contractors know exactly how much is being charged?
- to avoid being called lazy, money-for-nothing money-grabbers.
Maybe a reducing margin, so after 6 months or so, the charge is purely admin?
- to avoid being asked why there should be a charge for an extension, since "you've already done the recruiting work, why charge any more".
Maybe a margin cashback?

If you want to belong to an agency that makes profit from you, then by definition, you have contractors you are making profit from, that they are not a part of.

When a deal comes along, do you push for the best person to take the role, or the one that accepts the lowest day-rate?
- where else would your dividends come from?

It's a toughie trying to be fair, and trying to bridge the gap to become a contractor-friendly agency.
I therefore thought it could only be run as a co-op type set-up.

Anything else, and you run the danger of becoming the very thing this site (mostly) enjoys berating.

The contractor club is an interesting idea, but functionally unworkable, as you need to charge a high enough fee to ride out the troughs of the market.
If you cut the fees to notional amounts, a bad couple of quarters and you potentially have no operating cash.

Sorry for being negative. Will try to add some constructive ideas later on.

[TheFaQQer]

I'm simply suggesting that we could own a recruitment agency and share in any profits as shareholders.

There is no question of anyone not pulling their weight as no-one would be under any obligations to the agency, and no-one would pay fees to anyone regarding this. The agency would earn fees from margin on placements in exactly the same way as every other agency that any of us have worked with.

Each shareholder (i.e. us) would have a simple choice of working via another agency and never seeing any of the margin that is subtracted before the Contractor is paid (as it goes (after costs) to whoever owns the agency), or working via this agency and potentially getting some back as a shareholder.

OK, I become a shareholder in the company, as do another 49 contractors at the start.

10 of those contractors do some work through this agency, making a profit.

Profit is shared between the 50 shareholders.

So, the 40 shareholders who contribute nothing still get paid dividends.

As long as I'm one of the 40, I'm in

[kevpuk]

So, the 40 shareholders who contribute nothing still get paid dividends.

As long as I'm one of the 40, I'm in

Me too, me too!

[Taita]

The model to look at here is that used by lawyers and accountants, probably a limited partnership, trust me you don't want an unlimited liability partnership.


L&As vary a lot in their ability to sell and mostly work by having a subset who actually bring business in. Although many contractors would hate to seem themselves as sales droids they can be more effective, if you arrange so that the sales droid gets out of the way quickly and a guy who knows his stuff starts talking to the client.

You'd need someone to do the cold calling, arguing with clients about bills, smarming to HR and purchasing departments. He wouldn't need an office, but you'd need to pay for admin, phone, travel and client entertaining.

To get anyone halfway decent you'd need at least 15, more likely 20 contractors else they'd be more expensive than the way you operate now.

All 20 would have to agree on the deed of partnership which covers divving up the spoils. The legal bits are actually quite easy, since IT is the odd one out amongst the professions and most others operate at least vaguely like partnerships.

The hard part would be getting 20 contractors to agree on anything.

A partnership would also be able to bid for projects, which often have better margins than daily rate work, look at what Accenture and Crapita charge, it is possible that not one contractor who reads this charges as much as the average Accenture droid.

I'm not an expert on IR35, but it seems to me that such an outfit would be highly resistant.

To me the big problem is what do do about gaps.

The deed would basically pay by "eat what you kill" often used by loose legal partnerships with X% taken for overhead, like insurance the inhouse pimp, accounting etc

You will find that group schemes for insurance (liability and medical) are typically much less expensive than for one man bands.

A big hard question is what if a partner gets work from some other source ? In professional partnerships he'd be expected to put it through the firm which can mean that in effect he is paying two sets of pimps fees.

Conversely, what about someone who doesn't get work ?

Motivating the agent is pretty easy, he gets a rake off, but a challenge will be to tell the difference between one that is doing a good job and one that isn't. Also inevitably the posts he finds to fill won't evenly balance amongst the partners.

But, if you find a good one, you'll have someone who bothers to understand what you can offer.

Although I cite 20 as a lower bodycount, more is a lot better because if a client says "I need a SQL Server guy" and your inhouse pipm only has Oracle skills to offer that will make his job harder and his credibility lower, though obviously if you all do the same thing then saying "we are tulip hot Oracle experts" is an attractive proposition.

Good analysis. The really hard part will come when a number of contractors find that even their own 'agency' cannot keep them consistently in contracts. What then?

[malvolio]

50 contractors at an average £450 a day for five days a week to be paid weekly out of client funds that are a minimum 60 days away and more likely 90. That is a rolling debt of (£450*5 days * 8 weeks) = £900,000. Who puts that money up?

[northernladuk]

We should go for it! Disregard these moronic and fearful comments from "agent huggers" (read undercover agents!). They just overstate their own skills. Since when has an agent EVER sold a contractor? NEVER! Don’t you understand that it is the contractors, and their CV:s that sell? It’s the contractors going to interviews that sell, and it is their skills that clients buy. They don’t give a rat’s ass about the agents – they know they are all unskilled, un-educated and plain dumb individuals that didn’t manage to get another job! Everybody hates them, and for obvious reasons (well, obvious for anyone but themselves).

This moronic rambling just proves it is a bad idea even though that wasn't what you intended. Everyone doesn't hate them for a start. The rest isn't even worthy of comment.

We are the ones that spend time at site, and it’s easy for us to get new work. The only hurdle is that SOME clients are too lazy to re-write contracts, and engage another supplier (although I sense this is about to change as more and more clients understand how useless these agents really are and the zero business value they provide). If contractors cooperated, this agency nonsense business could be gone in a few years - hence the desperate comments from some of these folks in here…

But we work on site for the job we are paid to do. No waltz around getting more business.

But we shouldn’t hire a leach to do the job. It should be the combined efforts of senior contractors that do a bit of selling and marketing into key accounts while they’re on the bench (and get paid for it). The rest get paid by dividends, and their regular fees.

We don't hire them to do the job. Not sure how you can even think about this if you can't even understand the current model. Selling in key accounts while on the bench! ROFL.... jesus wept.

Cut those useless laches OUT!

LACHES OUT.. LACHES OUT!!!!!

…and please, don’t view accountants as the models for “running a business”. They’re bean counter, OK. Not business men. All of us SELL ourselves on EVERY interview for a contract. It doesn’t get more selling than that! We know how to do it already, and we (some of us are designing and building accounting/ finance systems, so why would doing the actual accounting be a difficult thing!!!??).

[evilagent]

If there are 50 contractor/shareholders, and a role became available, and they all had the appropriate skills, how would they, between themselves, choose 4-5 CVs to send to the client?
- the client doesn't want to interview all 50 of you, they want 4-5 good CVs, from which to interview 2-3, to engage 1.

The best way of evolving an agent-free system, would be to pool your current contacts.
- if you have done a really good job, you would be respected by the client, and your opinions may be regarded highly. This isn't true for all contractors/shareholders.

To reduce any major financial overheads, you would have to work for a couple of months before getting paid. (this has been interestingly described in an earlier post.) This would mean you would have to wait for the client to pay you directly. (although I know some direct clients that paid their invoices every 2 weeks with respect to contractors.)

If you start phoning around for new roles after you have finished a gig, you are behind the curve.
The pipeline for a role can be several weeks, where the client has been kept warm with regards to requirements and candidates while decisions get made.

I don't want to brainwash you on this but try this experiment;
Imagine you have finished a gig. You are looking for a new one.

What percentage of phone calls gets you through to the hiring manager?
What percentage of calls do you think result in contacting a hiring manager who has an active requirement?
What percentage of those is the requirement immediate? ie, within 2 weeks.
Of the percentage where there is a requirement, have a guess what the median time-frame is?
4 weeks? 6 weeks?

If the requirement is immediate, you have a 2-week downtime before earning again. Lucky beggar.

And even if you got wind of a requirement on 4-6 weeks, what are the odds of you being picked out of 3 possible candidates?
What are the odds the requirements change, or budgets need to be juggled, or projects get pushed back a couple of weeks?

[financial analyst]

hi FA,

I was looking at this as a contractor-friendly venture, maybe that's why I misread it as a co-op. Apologies.

If you're going to run an out-and-out recruitment agency, where the beneficiaries are the shareholders, then you have gone over to the dark-side.

In order for the company to fulfil itself and be profitable as possible, you would have to squeeze the margin of non-shareholding contractors to get your dividend from.

Do you anticipate having some USP to distinguish yourself from other agencies?
Maybe a fixed, transparent margin, so contractors know exactly how much is being charged?
- to avoid being called lazy, money-for-nothing money-grabbers.
Maybe a reducing margin, so after 6 months or so, the charge is purely admin?
- to avoid being asked why there should be a charge for an extension, since "you've already done the recruiting work, why charge any more".
Maybe a margin cashback?

If you want to belong to an agency that makes profit from you, then by definition, you have contractors you are making profit from, that they are not a part of.

When a deal comes along, do you push for the best person to take the role, or the one that accepts the lowest day-rate?
- where else would your dividends come from?

It's a toughie trying to be fair, and trying to bridge the gap to become a contractor-friendly agency.
I therefore thought it could only be run as a co-op type set-up.

Anything else, and you run the danger of becoming the very thing this site (mostly) enjoys berating.

The contractor club is an interesting idea, but functionally unworkable, as you need to charge a high enough fee to ride out the troughs of the market.
If you cut the fees to notional amounts, a bad couple of quarters and you potentially have no operating cash.

Sorry for being negative. Will try to add some constructive ideas later on.

Not negative. Constructive.

You have highlighted important commercial decisions to be made - it would be likely that the agency would push for more margin where the contractor is not a shareholder!