Launching a staffing company? Make sure you do this first.
Amid persistent worker shortages, the outlook for the staffing industry is strong. But finding success in this competitive space takes more than industry knowledge and a flair for hiring.
Staffing companies play a critical role in supporting the American economy. During an average week, the country’s staffing companies put around three million temporary and contract employees to work.
It’s also a highly lucrative industry, with staffing and recruiting sales reaching $168 billion in 2021. As a shortage of workers talent shortages continue, staffing services are predicted to be in continued high demand.
For someone who has industry expertise, the right contacts, or experience with recruitment and talent management, launching a staffing company can be a great way to take advantage of those professional assets. But long-term success requires more than industry and HR experience. It involves careful planning to ensure your staffing business is legally, financially, and operationally ready to find clients, meet their staffing needs, and tackle the unexpected issues that come up along the way.
AR Funding has worked with staffing business owners for more than 25 years, helping them accelerate cash flow and pursue growth opportunities. Here are five things the most successful staffing companies do to improve their chances of success.
Know your niche
Pre-pandemic, there were approximately 25,000 staffing and recruiting companies in the U.S., which means the competition in this space is fierce. By focusing on a specific niche area, you can reduce the amount of direct competition for your business, differentiate yourself in the market, and deliver tailored, high-value services that command a premium. Focusing on a specific staffing problem will also allow you to streamline your operations and recruitment processes.
Start by examining your area of expertise (healthcare, construction, warehousing, etc.) and determining the staffing options that already exist in the space. Do they adequately fill the need? Or is there room for additional options? Are there areas that are currently underserved? If you discover a need for staff with a specific skill set within an industry or a need for a specific type of staffing, such as temporary, contract, or permanent solutions, consider limiting the scope of your business to this area, at least at the outset.
As an added bonus, researching the market and documenting your market strategy in this way can also help you qualify for a bank loan if you decide to apply for this type of financing.
Document your business plan
Even if your plan for launching a staffing company is clear in your head, it can be invaluable to write it down. As you put your goals, target market, pricing, growth tactics, financial projections, and operational structure into words, you will gain a deeper understanding of your business—and that translates into a better chance of success. In fact, research shows that entrepreneurs who write formal plans are 16% more likely to create a viable business.
If you need help structuring your plan, the Small Business Administration provides tips and templates to help you get organized. The MyOwnBusiness Institute also offers best practices, resources, and templates to help you write a business plan.
Decide on processes and technologies
Once you have developed a business plan and you know where your success roadmap leads, you can begin pulling together the operational components you’ll need to support it. This includes standard operating procedures, contracts and agreements, and technology systems.
In addition to business technologies such as accounting, invoicing, and customer relationship management (CRM) software, you will want to consider specialized staffing solutions such as an applicant tracking system (ATS), client ordering platform, scheduling software, and payroll software.
Check legal requirements
Legal considerations are important for any new business owner to familiarize themselves with, but for staffing businesses, it’s especially important. Staffing companies need to comply with a host of legal and regulatory requirements that may include obtaining licenses, permits, and adhering to employment laws, insurance requirements, and data protection regulations. These can include:
- Privacy regulations such as the General Data Protection Regulation (GDPR) and state privacy laws such as the California Consumer Privacy Act (CCPA)
- State labor laws
- The Fair Labor Standards Act
- Occupational Safety and Health Administration (OSHA) standards
- Anti-discrimination requirements
- The Americans with Disabilities Act
- The Family and Medical Leave Act
- The National Labor Relations Act
Access financial resources
Determine your startup costs, including office space, equipment, technology, marketing expenses, and working capital, and ensure that you have the financial resources to cover these costs for at least six months. In addition to your own savings, you may wish to consider government grants, business or personal loans, and business or personal lines of credit.
For a staffing company, one of the biggest ongoing financial challenges is cash flow. While the law requires employees and contractors to be paid for their services weekly, biweekly, or monthly, client payment terms can stretch to 90 days. This means that as the staffing company grows, it can require larger and larger cash reserves to bridge the gap. (See more information on how to manage staffing company growth here.)
Many staffing company owners use invoice factoring to improve cash flow because it enables them to access cash for payroll without taking out an expensive bridging loan. Invoice factoring can free up 95% of the cash value of outstanding invoices as soon as they are issued, with the remainder disbursed once the invoice is paid.
Explore your options
Launching a staffing business requires careful planning, strategic thinking, and the ability to adapt to an ever-evolving job market. If you plan to launch a staffing company, talk to one of AR Funding’s regional VPs to find out whether invoice factoring should be part of the overall financial strategy for your new business.