How to finance its recruitments?

Financing recruitment: a difficult step 

This first part outlines the two main issues related to recruitment financing : cost and benefit asymmetry. 

The cost of your recruitment 

An easy but unfortunately erroneous shortcut is to equate the cost of an employee with his or her compensation. Indeed, while this is an important factor, cost must be considered when evaluating the total number of additional hires .

The expenses to be considered first are the costs associated with recruitment: advertising, costs of employer time, performing other recruitment-related tasks, and pre-employment assessment verification, etc.

Next are training costs : expenses during the training period, external training costs, media costs, etc.

Then we find the salary and social charges: the remunerations and other benefits granted are often easy to determine because they are defined in the employee's work contract .

And finally, work integration costs are also to be considered: costs of physical space as well as software, cell phones, travel and equipment or resources needed for work.

Asymmetry and uncertainty of benefits 

The main difference between an investment in a machine and a new employee is the degree of uncertainty about the outcome created by the investment. Indeed, the additional benefits created with the purchase of a machine can be easily quantified and measured.

On the other hand, the additional benefits generated by a newcomer are much more difficult to quantify, especially if the work is done in a team. Another important point is the adaptation time needed for employees to reach their optimal productivity threshold.

There is therefore a natural asymmetry between the cost of recruitment and the benefits derived from it.

Dilutive solutions available to you to finance your future recruitment 

Crowdfunding 

Crowdfunding (otherwise known as participatory financing) is a first financing solution based on a process of collecting donations, credits or equity investments.

Through platforms such as Lita.co, an entrepreneur has the ability to solicit several young investors to offer financial participation in order to build his business project. 

More precisely,equity crowdfunding (otherwise known as participatory investment ) concerns the situation where people offering their capital can in return take part in the capital of the startup at the conclusion of the financing process.

In contrast to other modes of crowdfundingIn contrast to other types of crowdfunding, investors take on the role of shareholders of the company to which they have offered their financing. 

Business angels 

In French "investisseur providentiel", a business angel is an independent person who offers his or her personal funds to a company as financing. Generally speaking, business angels mobilize their networks and experience to provide recommendations in addition to financing to entrepreneurs. 

The primary objective of the business angel is to achieve the highest and fastest possible return on investment and then sell his or her stake 3 to 5 years later. 

Like crowdfunding, using a business angel to access funding that you will use for your recruitment is dilutive. You are selling a part of your company to a third party. 

Microcredit

Another means of financing is microcredit , which consists of getting around the reluctance of traditional banks to give you credit. This method is also dilutive. 

The primary goal of microcredit is to help entrepreneurs build or transform their business in a sustainable way through the granting of a relatively accessible bank loan compared to what can be traditionally offered by banks.

But it doesn't stop there, since this mechanism is most often accompanied by a follow-up of the beneficiary entrepreneurs. Assistance in administrative procedures, support in cost control or commercial development are additional contributions of microcredit. 

Fundraising or Venture Capital 

Venture Capital is any equity investment by investors or other professionals. 

The latter subsequently subscribe to priority shares , shares with priority dividends or shares with warrants (ABSA) or other situations gathering advantages. 

Note that the entry of an investor in the capital is systematically limited in time. On average, a VC fund stays between 3 and 7 years in the capital of your company. Similar to business angels, its goal is to build up a capital gain extremely quickly. 

In connection with this last dilutive financing method, you must have heard about Corporate Venture Capital (CVC). This refers to the entry of large groups wishing to support young project holders in the capital of their companies. The support is then really structured.   

Advantages and disadvantages of these dilutive financing methods 

These dilutive financing methods have their advantages. They are good levers that can allow, with business angels for example, to access capital very quickly even at the very beginning of your development. 

Moreover, if you choose regional or national investors, they will give you the benefit of their strong experience and notoriety, all useful factors for future investments. 

However, they also have some notable disadvantages . One of them is the individual financial limitations you will face because you are subject to what investors want to commit. 

On the other hand, for regional or national investors, you will suffer from a lack of long-term support and relatively long administrative procedures. 

Last but not least, a big disadvantage is the inherent nature of these dilutive methods. Having to agree to share ownership of your company can impact the values and overall direction of your project. 

Adopt non-dilutive financing solutions for your recruitments! 

For entrepreneurs, these disadvantages often outweigh the advantages. Thus, it would be advisable to consider non-dilutive means of financing for a total control over the capital of your company. This list includes the main ones but is not exhaustive as the one you could find on the Karmen website. 

Tax benefits 

Tax benefits can be granted to certain companies and often these aids are in fact tax reductions and exemptions whose objective is to support young project holders at the genesis of their company. 

Among these aids, we find the research tax credit(CIR), the innovation tax credit(CII) or the aid for business creation or takeover(ACRE). 

Subsidies 

The French government allocates a budget to support business creation. Material or financial aid, tax or social relief are all subsidies concerned. 

Private or public organizations provide tech startups with specific aid under certain conditions, such as the Young Innovative Company (JEI) status, which is reserved for startups spending more than 15% of their earnings on R&D. 

Non-bank debts and loans

Another way to find capital to finance your recruitment is through non-bank borrowing solutions such as factoring, which is based on the acquisition of advance financing. A specialized credit institution is then in charge of the management on your behalf. 

In addition, BPIFrance is also a source of non-bank borrowing with its various options for short, medium and long-term loans, leasing, unsecured loans, innovation loans, and sectoral loans.

Finally, let's mention the " leasing "This type of lease allows you to cover the complete financing of equipment without any contribution. 

Self-financing

This particular method of financing calls for mobilizing one's own cash flow to obtain financing .

This is known as a company's self-financing capacity (CAF). It is the result of the difference between the income received and the expenses generated by its activity. 

Thus, it includes all the gross resources available to a company at the end of a fiscal year. In other words, its cash surpluses. 

Revenue Based Financing 

Revenue Based Financing is based on the opportunity of the subscription business model which generates recurring and predictable cash flow. The idea is to use the company's future revenues by converting these RRFs into up-front cash advances to unlock new growth leverage to finance growth in a non-dilutive way.

WithRevenue-Based Financing, credit providers become part of the relevant data alternative to retrieve data useful for understanding the business model.  

Once the company is eligible to receive RBF funds, the monthly payment amount is calculated based on the company's performance. In return, the funder charges a fee that typically ranges from 4 to 10% of the amount financed. 

Advantages of these non-dilutive means of financing 

By these vectors of financing, the principal advantage to be retained is that the entrepreneur keeps completely the control on his company and very quickly accesses the released funds which are without guarantee. Indeed, contrary to the dilutive financing which generates the entry in the capital of the investors, the non-dilutive financing does not imply any sharing of theshareholding of the company. 

A relevant use of RBF could be if you consider that it is not appropriate at this stage of your development to solicit external venture capital ists. You will then use the RBF as a sure way to improve your KPIs for future fundraising. 

Choose Karmen to finance your next recruitments 

In light of this comparison between dilutive and non-dilutive financing, the latter is surely more attractive than the former. If you're still not convinced, Karmen 's financial products will certainly help you see things more clearly.

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First and foremost, Karmen can help you finance your growth. This financing method adapts precisely to your needs, establishing an instant, fast, flexible and non-dilutive line of credit.

Karmen's RBF offerings are primarily designed for digital businesses,e-tailers and SaaS. Karmen is the reference in RBF financing. The company has just raised €50 million in debt.

Financing new hires is a common issue for many companies. Many financing solutions can be used, however, it is necessary to take into account the disadvantages of each.

It is entirely possible to opt for non-dilutive financing such as revenue-based financing. The experts at Karmen can passionately support you in obtaining instant cash flow for the growth of your digital business.