As signs of economic revival emerge, small firms are being urged to recruit skilled employees before the upturn takes hold, but where do they find fresh talent?

As small businesses switch strategy from survival to recovery, they will rely more than ever on their employees. Companies that were forced to lose staff during the downturn will need to regain vital skills while others must attract new talent to help their businesses expand.

Unemployment is still rising, but the rate at which jobs are being lost has slowed (see "Out in the cold"). Small firms have a bigger talent pool from which to draw, but they need to use the right tools. In the past, they struggled with traditional recruitment methods, finding agencies costly, and press advertising time-consuming and often unsuccessful. But now there are other options, with online hiring, freelance databases and social networking sites offering the chance to secure skills in a leaner, more flexible way.

James Brian, product director at online recruitment company Monster, admits that small-business users were left behind in his company's rush towards innovative recruitment technology. "As we grew, we courted global business, and catering for smaller firms was not a priority. We now recognise that the small-business sector is the way forward and the tools that we offer are geared towards their requirements."

Monster claims online recruitment takes an average of less than a month to be successful. It is also more cost-effective because clients pay only for the services they need. "Most importantly, the technology is easy to use—the search functionality is almost human-like and aimed specifically at the SME market," adds Brian. For more specialist roles and skills, companies used to rely on recruitment agencies, which charged up to 30 per cent of the employee's annual salary in fees. Modern, low-cost alternatives include Flexible Skills Bank, set up three years ago by former marketing consultant Karen Kennard to help small firms recruit skilled staff direct, with no upfront costs or commission.

"With so many people looking for work, businesses are overwhelmed by responses to their job adverts, and only a small proportion of job-seekers will actually have the right skills," she says. "We carry out a pre-screening of applicants and compile an interview shortlist for a similar cost to placing an ad in the local newspaper.

"A lot of businesses are at the stage where they need extra staff but can't afford to employ someone full-time, so we can also put them in touch with people who want to work on a more flexible basis."

Kennard recently added a human resources service that advises company directors and business owners on interview procedures and employment law.

Another potential source of skilled recruits—project-based, part-time or permanent workers—can be found in universities, which are being encouraged, in some cases with government cash, to forge closer links with SMEs.

Jacqui Gush, head of graduate employment at Bournemouth University, says: "There has been a tremendous amount of interest from small firms in the region which have never considered having a graduate in their workplace, but are now recognising the benefits. Although our current scheme has focused on short placements, as the region's economy starts to recover there is no reason why local firms shouldn't be able to offer these graduates permanent employment."

Informal recruitment campaigns that use social networking and employee referral schemes can also produce results. Setting up a profile for the business on websites such as Linkedin and Facebook, and directing it to the company's own site costs little but may attract interest from potential employees.

Encouraging staff to promote job vacancies through their own social networks and rewarding those who are successful at finding the right candidates could generate similar results.

With small firms acknowledged as important job creators—an estimated 84 per cent of new posts across the European Union were created by the sector between 2002 and 2007—the recruitment industry is ready to compete for a share of the market.

"Small firms are the clients of the future," says James Brian at Monster. "And our whole strategy is based on delivering what they will need as the market grows."

Skills crisis as the work rolls in

Who AGB Engineering
Sector Engineering support services
Annual turnover £200,000

Since the Jobcentre Plus service became more centralised, it has become a source of frustration for many business owners, including Paul Skyrme, managing director of AGB Engineering, the Swansea-based saw and tool support specialists.

Unlike many firms in the sector, AGB, with its seven staff and annual turnover of £200,000, has more than enough work on its books. But the company is being held back by an acute shortage of skilled, qualified electrical engineers.

"I knew exactly the type of person I needed; either a time-served electrical engineer or someone with the equivalent NVQ level 3 qualification, an I sent the job spec off to the Jobcentre. They sent me three applicants, none of whom were suitable," explains Skyrme.

"A decade ago, the Jobcentre included a team of people who ran the professional recruitment sector and had a reasonably good understanding of the technical aspects of a job. But that doesn't seem to be the case any longer," he adds.

Skyrme is facing a skills crisis at a time when the business is poised for a period of substantial growth, having won several public sector contracts to carry out work for the prison service and several schools and hospitals.
"Recruitment agencies are simply too expensive, and scouting for suitable candidates through our own networks has not been successful," he says. "When so many other businesses are struggling and having to lose staff, it is frustrating to have recruitment problems holding us back."

Want to cut costs? Hire a freelancer

Who Event Minds
Sector Training and coaching
Annual turnover £400,000

Finding people with niche skills is a priority for London-based Event Minds, which offers training and consultancy services to events and campaign professionals. The company employs eight full-time staff, but often needs to find extra people quickly depending on the project.

Having been disappointed by the efforts of the Jobcentre and recruitment companies, managing director Gordon Harvey has found a solution with Peopleperhour, an online outsourcing portal that brings together companies seeking specific skills or services and the freelance professionals who can provide them. "Peopleperhour allows us to target the skills and experience that we need on a flexible arrangement that suits both parties," says Harvey.

He anticipates major changes in the recruitment industry as more individuals choose portfolio or freelance careers over permanent employment and employers take advantage of the benefits and potential cost savings.

"I suspect that the recruitment agency business, with the exception of the top end of the market, will have to rethink their strategies. The Jobcentre will need to become more responsive and effective."

Are you ready for the upturn?

Gary White, corporate finance partner at CBHC Chartered Accountants, invites you to test whether your business is prepared for the recovery

1. Why are you in business?
a. I had the skills and experience to do the job better than previous employers and competitors.
b. I saw a market opportunity and acted on it.
c. I wanted to achieve a specific goal (selling the business and retiring or a certain lifestyle).

2. How have you responded to the recession?
a. With a review of expenditure, streamlining and eliminating non-essential costs.
b. By evaluating systems and finances, and identifying improvements to ensure customer satisfaction.
c. By exploiting opportunities presented by a changing market.

3. What is your approach to credit control?
a. Chase up with phone calls and statements as soon as an invoice becomes overdue.
b. Reward customers with an early-settlement discount, reducing their bill if they pay on time.
c. Incentivise customers to pay on time through fun schemes such as a monthly prize draw.

4. What is your pricing strategy?
a. Price is based on traditional rates, industry experience and customer expectation.
b. Price is based on competitors' prices.
c. We quote based on added value and factor in a margin for early-settlement discount incentives.

5. How do you compare with the competition?
a. We deliver excellent quality and service, so can assume we compare favourably with competitors.
b. We've been told we are better than competitors and secure lots of new business by referral.
c. We know our margins, turnover, pricing, product and communication strategy compares with local and national competitors.

6. What makes you different?
a. Excellent service and always delivering on our promises.
b. Our product is unique and can't be bought elsewhere and we offer the best value for money.
c. Continual innovation alongside products and services that anticipate
clients' needs.

7. How important are your people?
a. Very important, which is why we make sure their working environment is stress-free.
b. All staff have the opportunity to advance their skills through our focused training. 
c. Attracting and retaining the right people is crucial, so we offer them share options.

8. What is your business forecast for the next five years?
a. It is impossible to make accurate predictions when the economy is
so unstable.
b. We have a realistic growth target based upon past performance and the current climate.  
c. We have set an ambitious target based upon market analysis and competitor benchmarking.

9. What relationship do you have with your bank?
a. I don't see them very often as the account runs smoothly.
b. They communicate changes to our account and new finance schemes that are relevant.
c. They share our enthusiasm and understand how the company works. They have a copy of our business plan and we keep them informed of how we're progressing. 

10. Do you have access to funding?
a. We haven't looked into it as we don't want to borrow.
b. Our bank offered us secured lending and flexibility, such as an overdraft, should we need it.
c. We know of unsecured lending schemes and grants, and have access to private investors. We maintain current forecasts and business plans in readiness to assist with applications.

Answers

Mostly As:
Your vigilance and commitment to service are commendable. There is scope for you to grow sales and profitability by implementing strategies contained within options B and C. Look at your VAT basis: could you switch to cash accounting or go on a flat rate? Could you increase your prices for new customers but offer discounts for prompt payment? Focus on an area that you recognise could be improved, such as converting leads by 10 per cent within a defined period.

Mostly Bs:
You probably have a clear strategy for the expansion of your business. If you want to build a profitable company to sell in the foreseeable future then you need to plan your exit strategy now to maximise the return and limit your personal liability. Consider incentivising key personnel through tax-efficient schemes such as EMI; introduce a more creative element to credit control; and explore the potential of funding to facilitate a merger, expansion or diversifying into new markets.

Mostly Cs:
Your business is likely to be thriving. To identify areas for improvement, start with questions where you selected options A or B: could you develop a strategy to attract the best people to support expansion, or having achieved prominence, is there scope to offer a unique added-value service or product? How are you monitoring key performance indicators and how do you measure customer satisfaction? Maintaining these systems will bring long-term success.