So You Want to Start a Staffing Business?

Far West Capital

Good idea. Since 2009, staffing employment has been growing more than twice as fast as the economy – and six times more rapidly than overall employment. In 2015, staffing companies recorded new highs as temp and contract labor continues to rise. It’s never been a better time to get into the staffing business.

Before you rush out to register a company and start your staffing business, though, let’s talk about some of the potholes that our staffing clients have seen — and how you can avoid them.

Seek experience.

“No duh” advice, for sure. But let’s put a finer point on it. If you want to start a business, it’s best to have experience in that industry — but you can often apply the experience of others or transfer your own your experience from one business to the next.

That’s what Cruz Gonzales did. When he started  Gonzales Labor Systems in 1991, Cruz had no experience in staff placement, but did have over 25 years in food manufacturing, so he chose to make his niche in food service staffing. Cruz knew what the jobs entailed and what managers looked for in employees. He also had plenty of connections What he didn’t know about running a staffing biz, he learned by going to the tax office and joining professional associations.

Even if you do have years of personal experience in staffing, make relationships with vendors who have deep industry knowledge when striking out on your own. For instance, a CPA who specializes in staffing clients can help you set up your business structure properly and prepare for the higher payroll taxes and liability insurance endemic to the industry.

And don’t forget about professional associations, such as American Staffing Association, United States Staffing Association, or TempNet, which offer mentoring, education, and other resources. Local associations can help you learn about regulations in your state, such as unemployment requirements. Experienced partners help make sure you don’t get into trouble and you’ll learn so much just by working with them.
 
Find your edge and your niche.

When Mary Chism-Ferguson started Texas Apartment Services, her goal wasn’t to provide the fastest placements to apartment management companies. Instead, her team focuses on sending the highest quality candidates.

We’re real picky about who we send to work with our clients. Our temp-to-hire ratio is around 80% because we don’t rush people out. We’d rather wait a day, get that right candidate, and then we have a match. Our clients appreciate us for that.

The most unforgettable stories have a strong point of view. That’s what you want for your business. Whether you specialize in staffing for boutique hotels, food production plants, high-rise apartment buildings, or highway construction — or if you want your business to reflect a mission for social responsibility — make your company’s story unique and you’ll make your business memorable.
Set best practices in stone. (Goals, too.)
 
No business survives a willy-nilly approach to policies. Develop best practices for everything from interviewing candidates, onboarding hires, client communications policies, etc. Even if you are the sole employee of your business, this practice helps you define your beliefs, develop a mission, and show potential clients who you are. Defined policies help you stick to your mission, and, let’s face it, CYA if it ever comes down to it.

You should also set business goals — whether they take the form of financial progress or growth targets — and check progress toward them regularly. This gives you a framework for progress and an automatic to-do list for moving your business forward.
 
Figure your funds. Then figure some more.

Approximately 50% of staffing startups use their own capital to get up and running. But even if you are self-funded, you can’t keep your business going without enough ready cash to cover payroll taxes, or 941s, which are notoriously high for staffing companies. Texas Apartment Services started with $10,000 in the bank. In their first week, they sent out $50,000 in invoices. “But we couldn’t cover payroll. We were waiting on 30-to-60 day payouts,” says Mary. “We needed to have money floating.”

As your staffing company grows, being able to meet payroll will be your number one issue.

Meeting payroll taxes is another common problem. Therefore, having ready cash—and more than you think—is essential. It’s hard for staffing businesses to get a traditional small business loan. At least 90% of them are considered “non-bankable,” says Sean Lelchuk, Vice President of Far West Capital, Atlanta.

Most lenders are not excited about start ups, especially without real tangible assets. The only real assets staffing companies have are invoices.

Cast your safety net.

Instead, most staffing startups turn to asset-based lending or factoring companies like us in order to get that access to working capital. Factoring companies will either purchase your invoices for a discount or lend you money based on the amount you have billed out. This way, you don’t have to turn down new contracts because you lack cash. Factoring companies often help provide structure and accountability for a “bootstrapped” business.

It’s smart to choose a factoring company that has a broad base of staffing clients. They’ll know your most common struggles, and they’ll know how best to help. Our second biggest group of clients at Far West Capital are from the staffing industry. Because of that history and our deep roots in the industry, we’re able to make introductions to other resources that can help, because, let’s face it, most owners are trying it all on their own and they need a team to help.

That’s what Far West Capital is: A team member and a partner. We don’t just provide access to cash, but we ride the waves of the economy’s demands with you and help set you up for success. Even better, once we’re on your team, we stay partners. You won’t need to continually reapply for funds. We set up a sustainable relationship that can scale as you grow.


Ready to unleash the potential of your business? Contact us, and let’s talk about what we can do to help.

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