Funding Options for the Staffing Industry

STAFFING INDUSTRY FIRMS TAKE LONG-RANGE APPROACH TO SELECTING A FINANCING PARTNER

Reliable and immediate access to capital still of concern; however business owners begin to re-focus on future needs.

NEW YORK, October 5, 2009 – One of the lessons learned by young and mature businesses alike during the financial crisis has been the critical importance of strong relationships with sources of working capital. However, Sterling Resource Funding Corp. (SRFC) has witnessed an increase in the number of new clients who need not only access to a reliable source of funds, but access to a wider array of lending products as well.

For staffing companies in particular, the transition from start-up to maturity has traditionally meant navigating through a series of different financing providers as their business, and financing needs, grow. That approach is increasingly giving way to a longer-range view when it comes to choosing a financial partner at the outset, according to Sterling Resource Funding Corp. As a subsidiary of a full-service financial institution, Sterling National Bank, SRFC clients reap the benefit of access to a wider range of financing options.

“The effects of the profound disruption in the credit markets are causing companies to shift from crisis mode to sustainability mode,” said Stephen Leavenworth, Managing Director of Commercial Finance at Sterling Resource Funding Corp. “Rather than just focusing on immediate financing needs, companies are looking at financing on a more strategic or long-range level.”

Payroll funding is among the first of its operating costs a start-up staffing firm needs to address, according to Leavenworth. The usual solution is a factoring facility or a fullservice processing facility established through a payroll funding specialist. As the business enters a more intensive growth phase, however, staffing firms often are required to find a different financing partner that can provide the flexibility and access to more robust financing options needed to meet rapidly expanding capital requirements. “Cost of credit, flexibility of terms and access to multiple products are the guideposts that companies ought to be looking for as they evolve from start-up to a mature, established enterprise,” said Leavenworth. “The progression from factoring to money-only financing to asset-based lending to a middle market lending relationship will be a lot smoother and less time-consuming if you’ve chosen a partner from the outset who can deliver all of those products.”

Importantly, establishing such a relationship from early on should be a straightforward process, Leavenworth says. A seasoned, knowledgeable lender with staffing industry experience should be able to quickly make an accurate assessment of a prospective business. The criteria under review are relatively simple and include:

• The difference between the credit required to run the business and the eligible accounts receivable

 • Key balance sheet indicators such as debt-to-equity ratio • Quality of customers and payment terms

 • The quality of internal systems and record-keeping

 • The current state of collections processes and collections history

The bottom line, Leavenworth says, is finding a financial partner who has your longrange as well as short-term needs in full view plus the ability to provide a full variety of working capital solutions that support every step of the business lifecycle.

About Sterling Resource Funding Corp.

Sterling Resource Funding Corp (SRFC) is a national, full-service financing company primarily serving the needs of the staffing industry and other service businesses. SRFC professionals possess 25+ years of extensive industry knowledge; clients range from start-up companies to companies with $100+ million in annual sales.

As a subsidiary of Sterling National Bank, SRFC clients have access to a complete range of financing and banking options including accounts receivable financing, comprehensive payroll administration and back office support, asset-based lending, working capital lines of credit as well as deposit and cash management services.

Established in 1929, Sterling National Bank has successfully served the needs of businesses, professionals and individuals in the NY metropolitan area and beyond. Sterling National Bank is the principal banking subsidiary of Sterling Bancorp (NYSE: STL), a New York-based financial holding company with assets exceeding $2 billion.

What is Factoring?

In my normal course of daily activities, I talk to a lot of entrepreneurs and business owners.  We discuss everything from how they may have gotten started in their particular line of business, current production and sales activities for their company, business processes, the state of the economy, and the general outlook and prospects for future success of their enterprise.  Eventually, the conversation always turns to finances, and ultimately, cash flow.  Invariably, my prospects will ask the question “What is Factoring?”

Factoring may mean different things to different people, but essentially factoring is the sale of accounts receivables at a discount to a finance company.  If you own a small business, you typically sell your product or service to a client with payment terms in the future (i.e. net 30, net 60, sometimes net 90 days).  Essentially you are providing free financing terms to your clientele in order to sell your products or services to these clients.  Merchants who offer credit card payments use factoring all the time – when they swipe the credit card at the point of sale, they are willing to give up a percentage (from 1.75% – 3.5%) of the sale to receive immediate payment.  The purchaser of the goods pays the finance (credit card) company the full amount, and the finance company pays the merchant a discounted amount.

Factoring dates back some 4,000 years, to the cradle of civilization.  Almost every civilization that valued commerce has practiced some form of factoring, including the Romans, who were the first to sell actual promissory notes at a discount.  Prior to the 1930’s, factoring in the US occurred primarily in the textile and garment industries.  After the war years, factoring companies saw the potential to bring factoring to other forms of invoice-based business and the expansion began.

So how does factoring accounts receivables benefit a business owner?  In other words, why would you sell a current asset at a discounted price to a finance company?  Wouldn’t it make sense to simply wait the 30, 60, or 90 days for the client to pay the invoice?  The answer always relates to the time value of money, and having sufficient cash flow on hand to sustain operations until client payments are received.

Let’s explore one industry where factoring is heavily used, and is very beneficial: Temporary / Contract Staffing.  The concept of temp staffing is simple:  Find clients that are willing to accept your candidates for temporary or contract assignments, sign a contract with those clients, find the right employees for those jobs, secure the proper insurances in order to send your employees on assignment, hire the employees, send them out on assignment, then bill for your services.  Believe me, there is TONS more involved in the process, but for now, we will stick with the basics.  So, you’ve gotten the contract, put the employee on your payroll, sent the employee out on assignment, and have sent an invoice for your services.  But there’s a catch… your employees wish to be paid weekly for the work they are doing, and they are your employees, so they will expect a paycheck after week 1.  However, your client invoice will not be paid for 30, 60, up to 90 days later.  The national average is approaching 45-50 days, so we’ll say that invoice will be paid in 48 days, or six weeks later.  If you continue to send this employee out on assignment, he or she will still expect to get paid weekly.  In the meantime, rent, telephone, internet, advertising, and other costs are coming due and you still haven’t received payment 1 from this client.  Multiply employees by 10 or 20, and clients by 2, 5, or 10, and you can see where you may need some cash flow in order to “carry” your working capital costs.

In steps a factoring company.  You have a current asset on the balance sheet – an accounts receivable, or future payment due from your client.  How do you take that current asset and turn it into cash immediately so that you can continue to run your business?  The finance company will step in and purchase that receivable immediately, at a discounted rate, which will give you the cash to operate your business.  Then, the finance company will wait the 30, 60, up to 90 days later for your client to pay that invoice to them.  You get the working capital you need to sustain and grow your business, the finance company earns a fee for “fronting” the monies, and business moves on. 

Most factoring companies also offer additional services such as credit checks on potential new clients, collections assistance, and some even offer computer / back office services, depending on the industry.  Most will also offer cash management reports, as well as generate accounts receivables aging reports in order to keep a company abreast of outstanding obligations, by client, and by age.  Again, giving up a small percentage up front in order to sustain, maintain, and grow your business may make a lot of sense, especially in today’s economy.

If you would like to discuss your current cash flow situation, you may contact Dale Busbee, Business Development Representative, at Sterling Resource Funding Corp, at (985) 641-8817, or via email dbusbee@sterlingresourcefunding.com.

Are you passing up Staffing business?

It’s no secret – the economy is currently in the tank.  Businesses are laying off workers, bankruptcy is at an all-time high, the housing market is terrible, and companies are cutting expenses to survive.  To say the least, the forecast for success, for the most part, is bleak for the foreseeable future.  However, there are some areas that are seeing some slight growth, or growth potential, to include the healthcare and information technology staffing sectors.  My question is, if you are staffing/recruiting in those areas, especially on a contract basis, are you turning down business because of lack of funding to support that business?

There may be a few reasons a staffing company may turn down business.  One may be a lack of manpower to recruit employees for client openings.  With many staffing companies trimming expenses, there may have been a need to lay off recruiters, which hinders the ability of the company to recruit as many employees to work on assignment.  The second reason is that clients of staffing firms are taking longer to pay their vendor invoices.  Companies are trying to hold on to cash reserves for as long as possible, and their vendors are starting to see extended payment terms for their services.  A third reason may be that the creditworthiness of a potential client (i.e. the client’s ability to pay for services) may have diminished with the weakened economy. 

With all of these variables in place, staffing companies may be taking a wait and see approach before expanding their business.  Again, my question is, why wait to expand your business?  Staffing companies should be taking advantage of every opportunity to grow the revenues of the company.  If the ability to fund the business and process the payroll and payroll taxes were taken out of the equation, wouldn’t you seek to grow your business?  There is a simple solution to taking on the new business, and it involves partnering with a funding source that understands your business.

Staffing owners are in the ultimate Catch-22 business – the more contract placements you make, the greater the need for sufficient working capital funding to carry payroll and other costs of doing business.  Your employees expect to be paid weekly, or at least bi-weekly, yet it takes from 30 – 60+ days for your clients to pay for your services.  Without proper funding to cover those costs, it can be difficult to grow your business.  Also, you must have resources available to process the payroll, file and pay 941 payroll taxes, pay your employee, create and send out invoices, and send out year-end W2s and/or 1099s.  Partnering with a funding source that can not only cover working captial costs, fund weekly profits, process payroll, payroll taxes, pay employees, file 941s, and send out W2s can be a life saver for staffing companies.

So what’s it going to cost?  Most funding companies charge anywhere from 2% – 5%, depending on the services they are providing.  The real question should be, what’s the opportunity cost of passing up additional business?  Patnering with a funding company will allow you to cover the costs of doing business, assist in credit profiling of your potential clients, monitor your outstanding receivables, assist with collection efforts, and taking some of the administrative load off your plate will be your best option for growth.

If you would like to discuss your situation, you may email Dale Busbee, Sterling Resource Funding Corp, at dbusbee@sterlingresourcefunding.com or call (985) 641-8817.

10 Tips for Starting a Successful Temporary Staffing Company

So you’ve decided to start up a temporary/contract staffing company, and you would like to know what’s involved in ensuring success in your new venture.  To follow are 10 tips for making your new venture a success.

1. Define Your Market – Most entrepreneurs that start a staffing company come from within the industry.  Some have worked for other agencies as a branch or regional manager, recruiter, or sales professional.  Others have owned a staffing company, sold their company, then returned to open a new company.  Whatever the background, defining a specialty staffing area can be the key to your success.  Whether it’s concentrating on accounting, finance, admin/clerical, light industrial, healthcare, IT, or professional areas, you must define your area of focus.  Depending on your crew, it may be necessary to concentrate on one area first, then branch out to others as you bring in industry experts from other areas.

2. Define Your Strengths – Everyone has strengths.  Whether it’s in sales/business development, marketing, operations, financial acumen, or other areas will depend on your role within the organization.  You will want to take over roles matching your strengths, and leave the other areas to professionals best suited to handle the other functions in your business.  For instance, if your specialty is business development, you want to be the one calling to get job orders and secure contracts.  You may want to bring in an operations professional to handle day-to-days tasks of running the agency.

3. Define Your Weaknesses – This step goes hand in hand with #2, but can also include specialty areas as well.  If you have a background in healthcare, you will probably want to attack that marketplace as an expert in the industry, versus taking on IT or Accounting clients.  Stick with your strengths, and bring in experts to handle other specialty areas.

4. Get The Basics – The first step in opening a business is to incorporate in states that you are going to conduct business.  I would recommend either going online to your Secretary of State’s website, or visiting a local office to incorporate.  Whether it’s as a SubChapter C, S, or LLC, you want to make sure that you distance your personal business from your staffing business.  Consult with your attorney on setting up your business as a corporation, but putting a layer of protection from your personal and business assets is paramount when starting your business.  You may want to also consult your Accountant when setting up your business to inquire about setting your business up on a cash vs. accrual basis for accounting purposes.  Also, if you are going to have candidates interviewing for positions, you are going to want to consider having a corporate office location, whether as an executive suite, in a strip center, or in a separate building.  Appearance is everything, and you don’t want to be meeting candidates at your local Starbucks for interviews.  Also, be prepared to contact your phone company for a business line, and consider leasing or buying office equipment (copy/fax machine, phone system, etc).  Office supplies are also necessary to run your business.

5. Determine Insurance Needs – This is the fun stuff, as they say.  Nobody likes to buy insurance, but unfortunately, it’s a requirement for running a temporary/contract staffing business.  Minimum insurance requirements will be for General Liability and Workers Comp.  You may also want to consider having E&O and Professional Liability Insurance coverages.  Find an insurance carrier that understands the staffing industry!  A list can be found under insurance providers for the American Staffing Association (www.americanstaffing.net).  If you are a start-up, you may have to contact your state’s Insurance Fund to get your first Workers Comp policy.  However, once you have an established business, you may be able to gain insurance from a private insurance carrier.  Again, make sure you are dealing with a broker or agent that understands what your company and the staffing industry.

6. Determine Your Funding Needs – Without proper funding, your business is going nowhere.  Understanding that you have to lay out money to incorporate your business, buy insurance, get an office location, purchase or lease equipment, purchase office supplies will get you to the point of opening your business.  At that point, now you have to hire employees.  They will be on your payroll and covered by your insurance.  Now you need to place them on assignment and they expect to be paid weekly or bi-weekly.  Once you bill for your services, it may take 30, 60, up to 90 days to get paid from your clients.  You will have to carry that payroll for up to 90 days, unless you have a funder who will carry that payroll for you.  You may have put up your savings to get the business off the ground, but if it takes off, you may run into a cash crunch fairly quickly.  There are several options to cover your payrolling and working capital costs, but again you will need to find a funding source that understands your business and is able to fund your business based on the volume of business you generate.  Banks these days are being very cautious about who they lend funds to, so I would recommend your finding a receivables financing company that specializes in the staffing industry.  If you don’t enjoy the administrative functions of running a business, or would like to outsource your back office (billing, payroll, payroll tax) functions, some funders exclusive to staffing will not only finance your business, but take on the back office piece.

7. Market Your Services – Once your business is set up, now is the time to start marketing your services to potential clients.  Some folks already have target companies in mind, based on prior business relationships.  Warm calls and referral business is always preferred to cold calls, but when you are getting started, you have to utilize any methods to pick up new business.  Joining social networks such as Linkedin, Twitter, Facebook, or others is a great place to start.  Use your existing contacts to leverage other contacts.  Let everyone you know that you have a started a new business venture that you are excited about and want to share.  Network, Network, Network. 

8. Find Candidates / Employees – In days past, the only way to find candidates was to pick up the phone and call into companies, or run a newspaper ad.  There’s something to be said about those methods, but with the advent of the internet, social networks, job boards, etc., finding candidates has changed.  Posting jobs to Monster, Careerbuilder, Dice, The Ladders, is great, if you can afford to subscribe to those services.  Networking through Linkedin, Twitter, Facebook, and other social networks can be as effective, and much less expensive.  Joining professional organizations such as The Amercian Staffing Association, local staffing organizations, or attending trade shows / staffing conferences can bring credibility to your organization, and provide excellent networking opportunities.

9.  Become an Expert – People like to deal with professionals they feel comfortable with, view as an expert in their field, and provide value to the relationship.  Take the time to learn about the industry, your specialty recruitment areas, and the clients you plan to call on.  View each sales call as a job interview.  Be prepared to discuss your prospective client’s company as if you planned on working there.  Know their business, study their history, become familiar with their culture.  If you are viewed as an expert in the industry, especially in your field, then it becomes a matter of finding out if your prospective client can afford your bill rate and if you can add value to their organization.

10. Repeat the Process – If you take the proper steps to set up your company correctly, then it’s a matter of building out your company.  You may want to start small, then take on new business slowly.  Or, if the opportunity presents itself, you may be able to capture unique opportunities to grow your business quickly.  Remember to define your market, know your strengths, find an suitable funding source, and network, network, network.

If you would like to discuss your situation, please feel free to give Dale Busbee, Business Development, Sterling Resource Funding Corp a call at (985) 641-8817 or via email dbusbee@sterlingresourcefunding.com

Start-up Staffing Companies: A Suitable Funding Option

What is the scariest part of opening a new temporary staffing or contract staffing company? In a word, I would say PAYROLL. Once you have gotten to the point of getting the business set up, contracts in place, and are at the point of sending out your first employees, the first major business hurdle hits you immediately: paying your employees for that first week’s work. Then, with the realization that your clients will not be paying your invoices for 30-60 days, the next reality sets in – how do I come up with the cash to pay my employees and other expenses including advertising, rent, telephone, etc. without sufficient working capital? You mean to tell me I may have to “float” my own payroll for 4 – 8 weeks before I start seeing dime one from my efforts? That can create some stress in your life.

Now let’s take the more established firm that has been plugging along with one to three small clients, and the clients are paying their invoices for services provided in 2-3 weeks. The staffing owner started with enough up front capital to ensure payroll would be met for that amount of business, and didn’t need to worry about a funding source to run their business. Then the staffing owner gets a call back from a client he or she has been pursuing for quite some time that is now ready to utilize their staffing services. The only “problem” (if you want to call it that) is the client needs 20 new employees from you in the next 2 months, and their payment terms are net 45 days. In reality, you won’t see your first invoice payment in your hands until probably 50 days, which means that you have to “float” your own payroll for over 7 weeks for 20 new employees! Anybody see where we are going here? This could create a small cash flow / working capital crunch.

So what are your options? You could continue to service your smaller clients as usual, then try to take on one to two additional employees per week for your new prospective client, if they are willing to wait several months for the new employees. The chances of that client waiting on you are like waiting to win the lottery – probably a pretty slim chance of that happening. If you can’t supply the employees within their time frame, they will certainly be on the phone with your competitor to fill those open positions. I suppose you could turn down the business all together, but what sense would that make? You are trying to grow your business, and can ill afford to turn down new business.

A fairly easy solution would be to find a funding source to partner with that understands your business and allow you to pick up the additional business without having to worry about meeting payroll. As a matter of fact, one that would let you pick up any amount of additional business so long as your clients were credit worthy. The opportunity cost of turning down additional business due to lack of cash flow can be very damaging to your business. Hopefully you got in to the staffing business to grow, not to maintain status quo. If you have to pass up business, then your company will not reach its full potential.

Having an unlimited funding source that truly understands the staffing industry, and wants to work in partnership with your business to ensure your growth can make all the difference in the success (or lack thereof) of your business. Whether in a start-up or expansion mode, staying ahead of your payroll is essential in the staffing industry.

If you would like to discuss your situation, please contact Dale Busbee, Business Development Executive, Sterling Resource Funding Corp via email at dbusbee@sterlingresourcefunding.com

How do I protect my staffing business in this economy?

With the current state of the economy, most companies are in survival mode.  Where can business owners cut costs and not affect the survival of their company?  Should we outsource some functions of our business so that we can concentrate on our core competencies?  Should we diversify our business and/or identify additional revenue streams in order to bring additional funds into the company?  Will my funding source stick with us during these trying times?  Should I look to sell my company, or can I survive long enough to weather the storm?  These are all valid questions, and will be addressed.

As a staffing owner, you realize quickly that cash flow is king.  With the economy taking a turn for the worse over the past year or so, most staffing clients are taking longer to pay their invoices, which in turn affects the cash flow ability of the staffing owner.  Payroll and other working capital expenses are having to be “carried” for longer periods of time, which can put a staffing owner out of business.  Additionally, it makes it tougher for the smaller staffing owner to take on larger staffing assignments, as more resources (cash, in particular) are needed to fund the engagement.

So where do I cut costs?  Lay off recruiters or sales people?  Lay off or cut back internal staff?  Cut back on travel expenses? Move to a smaller location/work virtual?  A combination of all of these things may help in the short run, but realize that when you cut headcount, ultimately someone else in the organization will have to take over those duties.  You, as the owner may have to take on the sales/recruitment role for the company, which may pull you away from growth opportunities in other areas.  It’s a cost vs. benefit call in the long run, and a very tough decision.

What about outsourcing?  As a staffing owner, revenue is brought in when you place a candidate, whether on a permanent or contract basis with a client.  You bill for those services, bringing revenue into the company.  If on a permanaent basis, the only “cost” to you would be the commission paid to a recruiter who placed the candidate.  There are no payrolling costs involved.  If a candidate is placed on a contract basis, they now become your employee, and costs such as payroll, payroll taxes, and workers compensation are involved.  Instead of hiring a full time accountant or payrolling clerk, perhaps you should consider outsourcing your back office billing, payrolling, and payroll taxes to a third party.  Some funders that specialize in the staffing industry provide these back office services, in addition to funding the business.

What about diversification?  In the employment industry, placements are made on either the permanent or contract/temporary basis.  In order to capitalize on all opportunities, many employment agencies are “blending” their business with both types, which can tend to stabilize revenue flow for the company.  Also, capitalizing on different specialty areas, to include IT, Healthcare, Admin/Clerical, Professional, or other areas may provide additional revenue opportunities.

Regarding your funding source, you may want to make sure your funder is financially viable, especially in these times.  Some funders who have to borrow from banks in order to lend to their clients are seeing their ability to support larger clients dry up due to their inability to secure funds from their lender.   Also, some banks are pulling back on direct lines of credit or becoming more restrictive on the amount of funds they are willing to lend.  There is nothing worse than having to turn down potential staffing business because your funder can’t support your business.

Finally, should I sell?  If your business was strong before the recession, likely it will be strong after the recession.  A quick sale could be the answer in the short term, but hanging on to the business, developing it where you can, cutting the right expenses, and keeping a survivor’s mentality will likely be the best answer, because in the end, the strong will survive.  Business will return at some point, and the hard work you’ve put in will pay off.

If you would like to discuss your situation, you may contact Dale Busbee, Sterling Resource Funding Corp, at (985) 641-8817 or via email at dbusbee@sterlingresourcefunding.com.

Is your Payroll Funder a PRIMARY lender?

In my conversations with potential prospects, it has become apparent that the credit crunch in the US is weighing heavily on many people’s mind. The country’s credit crunch has become a worldwide crisis, which begs the question: when using or considering the use of a funding company to support your business, is your funder a PRIMARY lender?

The vast majority of companies that fund staffing agency and IT consulting payrolls are NOT primary lenders. They rely on a line of credit with a third-party bank or other financial institution in order to fund your business. As credit tightens, these lines of credit shrink. More and more are being eliminated completely. If that happens to your payroll funding company, where will that leave you?

Sterling Resource Funding Corp is NOT dependent on credit from a third-party bank or finance company. Instead, we are a wholly-owned subsidiary of Sterling National Bank, a strong, viable, and stable 80 year old financial institution with assets exceeding $2 Billion. Therefore, staffing and IT consulting firms working with Sterling know that their payroll and working capital expenses are going to be covered, regardless of the credit environment. In other words, we are a PRIMARY lender, with available funds to lend to our clients.

With that in mind, I’d like to make a special offer. Contact me directly, and we’ll perform a strictly confidential review of your payroll funding and business process needs. I’m sure you’ll find the results valuable. My direct line is (985) 641-8817. Or you may email me directly at dbusbee@sterlingresourcefunding.com.   Perhaps we can help – before the credit freeze leaves you out in the cold.

Payroll Funding vs. Factoring for the Staffing Industry

When considering a financing option for your staffing company, there are several options that may be available when dealing with a factoring or payroll funding source. Let’s explore 2 options: Factoring and Payroll Funding with Back Office Support.

Staffing company owners generally find out quickly when starting their company that it is a very CASH intensive business. The concept of staffing is simple: you market your services to potential clients, sign a contract to place your employees or contractors with those clients, identify suitable candidates for jobs, send your people for those jobs, then bill for your services. The only problem is that you hire the employees and pay their salaries generally on a weekly basis, yet your clients can take from 3 weeks to 3 months to pay your invoices. This creates a cash flow deficit almost immediately! The concept is simple, yet in reality, it takes positive cash flow to pick up the clients, pay your employees, and wait to get paid for your services.

One of the easiest and most effective solutions available to staffing companies is to locate a suitable funding source for your business. It is generally a pretty painless process to get approved for funding, and it will allow staffing owners to take on qualified new clients without the worry of paying for your employees before getting paid on your invoices. You submit your invoices to the factoring company, and are paid a discounted percentage (usually 80 – 90%) immediately for those invoices. Once the invoices are paid, the factor deducts a small percentage as a fee, and returns the rest to the staffing company. This program is referred to as factoring or invoice factoring, and the service is provided without back office services. In other words, invoicing, billing, payroll tax filing and payment, W2 submittals, etc. are created and maintained by the staffing company, and the factoring company only provides funding for invoices.

Some factoring companies go a step further and take the administrative responsibility off the staffing owner and provide back office services along with funding invoices. These services include funding 100% of payroll & payroll taxes, processing weekly payroll, processing weekly billings, creating original invoices and submitting those invoices to the staffing clients on their behalf, preparation and submittal of payroll taxes as required, creating payroll checks, payroll journals, check registers, invoice previews, accounts receivables agings, gross profit reports, and preparation of year-end W-2’s. The fees for this type of funding can be a bit higher than for factoring, however many staffing owners would like to relieve themselves of administrative duties to concentrate on revenue producing activities such as signing up new clients and sending out more temps to their clients.

Either program can be an effective solution for staffing owners, it really depends on your tolerance for administrative activities.

If you would like to discuss your situation, please contact Dale Busbee, Business Development Executive, Sterling Resource Funding Corp via email at dbusbee@sterlingresourcefunding.com.

Insurance for Staffing Companies

When starting a staffing company, it is important to note that before you send out your first temporary employee, you must have adequate business insurance in order to conduct business. At a bare minimum, you will have to purchase Worker’s Compensation and General Liability Insurance. On top of those insurances, it would be a good idea to consider buying a G/L policy that will also include Professional Liability Coverage, as well as Errors & Omissions (E&O) coverages. The biggest challenge a staffing agency owner may face could be identifying an insurance company that truly understands the staffing industry.

Unless you are working with someone who understands your business, you will spin your wheels in trying to secure proper insurances. The challenge with underwriting an insurance policy for a staffing company is the fact that you are or will be sending out temps or contract employees to remote, 3rd party client sites, which can cause you to lose direct control over those employees. If those employees worked on-site every day at your office location, the risk would be easier to assess. However, in the staffing world, your direct employees work at client locations, which adds risk from an insurance company’s perspective. Insurance companies have a larger underwriting task when taking into effect that your employees may be asked to perform certain tasks at a client location that you may not otherwise ask them to perform if they were on-site at your office.

I would imagine researching insurance companies, finding the right company and insurance policies to purchase, then actually purchasing the policy would be about as much fun as making a trip to the dentist. Both are quite necessary, but not much fun. However, if you don’t have insurance for your staffing business, you will not be able to operate your company.

How do you know just how much insurance to purchase, and what types are right for your firm? You don’t want to be over-insured, but you certainly don’t want to be under-insured either. Once you find the right insurance partner that understands YOUR staffing business, ask them to recommend coverage amounts and types of policies. If you already have staffing clients in place, or if you have potential clients you will be doing business with, ask them to send you their standard staffing contract. More than likely, your client will have a section in their contract that will cover insurances, and how much and what types you need to have in order to do business with them.

Keep in mind, your clients want to deflect as much insurance risk on to you as possible. They would prefer to have zero risk in having your employees work on-site at their location. If a potential client is asking for more insurance coverage than you will be able to pay premiums for, you may consider trying to renegotiate their contract, or consider foregoing that business. It may not be worth the extra premium dollars you will pay in order to pick up the staffing business. However, if the margins are large enough, and you feel certain the client will utilize your services for a long-term period, you should consider upping the insurances to grow your business.

As a start-up staffing company, you may have no choice but to purchase your Worker’s Compensation insurance from a State Fund, rather than from a private insurance company. The laws are different in each state, but when you speak to your insurance agent, find out if private insurance is available for Workers Comp, due to the fact that it may be less expensive to purchase than from the State.

Also, you will either have to estimate your payroll or sales/revenue in order to get a quote on your insurances. I would be prepared to have a projected figure in mind. Don’t over-estimate payroll or sales because you may end up paying more each month in premiums during the first year, which could eat up profits from the business. Also, don’t under-estimate because you may be hit with a major one-time premium at the end of the year due to withholding less during the year. It’s a tricky calculation, but hopefully your agent can assist you in your calculations.

If you would like to discuss your situation, please contact Dale Busbee, Business Development Executive, Sterling Resource Funding Corp at dbusbee@sterlingresourcefunding.com.

Start-up Costs for Staffing Companies

So you have laid the groundwork for starting up a temporary staffing or consulting company based on your prior knowledge of the industry. Perhaps you have been a regional manager or recruitment officer of a company, have grown the business for someone else, and have decided to move out on your own to start to begin your adventure in the staffing world. So what are the fixed and variable costs associated with starting your business?

There are certain costs that are a given when running a staffing company. The main costs associated with the business relate to payroll/employee costs and insurance. Of course, as with any other business, you will incur variable costs including a corporate lease, capital/office equipment, telephone service, advertising costs, employee benefits (if you choose to make them available), and other general overhead costs.

Regarding payroll expenses: the business represents the ultimate Catch 22 situation; the more business you produce (i.e. the more job orders you fill for your clients), the more weekly payrolling costs that are involved in running the company. This can create an immediate cash flow crunch because your temp employees/consultants generally want to be paid on a weekly basis, yet your client invoices may not get paid for 30 – 60+ days. Your total payroll burden/costs can vary, which makes it necessary to price your services accordingly. Depending on the type of employees you are sending out, your gross markup should range from 40 – 65% in order to have enough profits to pay your employees, pay your overhead, and have enough left over for yourself.

Then comes the insurance burden. If you plan to have W2 employees, you must have Worker’s Compensation insurance, along with general liability, and most likely professional insurance coverages. Again, depending on the type of employees you will be sending out on assignment, your costs will vary. Admin/Clerical and IT costs for Workers Comp will be much less expensive than the cost for Light Industrial or Industrial employees. Also, depending on the state in which you do business, the costs will vary.

It is important to note that the staffing business can be a very lucrative business, but should not be taken lightly. Unless you have prior staffing industry experience, it can be a tough business to break into. You have to constantly work to secure new clients, and have a backlog of candidates to place with your clients. Many clients will require that you have sufficient insurance in place before you can send your employees to work at their site. It is important to find an insurance company that specializes in the staffing industry to obtain the proper insurances, along with the right amount of coverages for your particular business.

As long as you have the proper background in the staffing industry, along with the desire to work very diligently to make the business successful, your business should prosper. Knowing the costs involved in running the business up front will ensure a successful venture into the staffing world.

If you would like to discuss your situation, please contact Dale Busbee, Business Development Executive, Sterling Resource Funding Corp @ (985) 641-8817 dbusbee@sterlingresourcefunding.com.