Approximately 158 million people are employed in the US, and approximately 10% of them (16 million) are employed by US staffing companies. The staffing industry plays an integral role in supporting American productivity, and as the Great Resignation and economic volatility continue to disrupt the workforce, staffing companies will need to fill in the gaps.

This presents exciting opportunities for growth, but it also poses new challenges.

In this article, we look at how staffing companies can plan for sustainable growth and minimize the inevitable growing pains.

Staffing is in growth mode

The staffing industry in the US is expected to grow rapidly, with industries such as IT, technology, and healthcare among some of the sectors that will see the fastest growth. Industry revenues are forecast to grow by 16%, reaching $157.4 billion. As a result, staffing companies are growing: the number of US staffing companies making $100 million or more in revenue jumped 21% in 2021. And with nearly half of US companies (46%) expected to add more jobs in the second half of 2022, the need for staffing support is likely to intensify.

Unique expansion challenges

As staffing companies look to expand in order to meet a rising need for their solutions, they face a unique set of hurdles.

Operational expertise. Most staffing company owners started their businesses because they excel at finding workers and matching their skills to the right work environment. However, as the business expands, owners must be ready to augment these foundational skills with the operational skills required to manage larger, more complex operations. Areas such as workflow management, IT, marketing, sales, and financial management become more complex, specialized, and time intensive as the company grows, and owners need to have a strategy in place to acquire the expertise they need, whether through new hires or service partners.

Cash flow. Cash flow is a universal business challenge, but staffing companies are among the hardest hit because of the wide gap between the payroll cycle and the billing cycle. Employment law requires employees and contractors to be paid for their services within one week, while payment terms of up to 90 days are the industry norm. As the staffing company expands, larger and larger cash reserves are required to bridge that gap and fund increasing growth.

Financing. As a result of challenging payroll and billing cycles, few high-growth staffing companies can self-fund growth. Unfortunately, companies in this industry face greater difficulties than most in obtaining financing because, as people-focused businesses, they lack fixed assets that they can use to secure bank loans. While a traditional bank will consider issuing a loan against business equipment, real estate, or vehicles, assets such as human capital and proof of future earnings (service contracts and invoices) do not qualify.

“In two years, my staffing business has grown 220 percent. As the business owner, I want to focus my time on monitoring and improving our processes, improving our engagement with our clients, and developing business opportunities and relationships. I don’t want to focus on the finance portion of my business.”

– Staffing business owner

Tailored solutions for staffing

Staffing companies may experience a specific set of obstacles on the road to growth, but there is always a solution. Here are four ways to manage growth sustainably.

Outsourcing

For staffing agencies that struggle to keep up with the administrative and operational tasks that keep the business running, outsourcing call help alleviate the pressure.

Some of the most time-consuming tasks, such as IT, bookkeeping and accounting, managing accounts receivable, and managing payroll, are areas where company owners lack not only time but expertise. As the company grows, outsourcing can be a way to help you delegate these activities to qualified partners. The advantages over hiring in-house staff include:

• Service-level agreements ensure that your service partners perform their roles within specific timeframes or deliver specific outcomes.
• Service partners come fully equipped with the processes and technologies required to deliver optimal results.
• Cost-effectiveness. As your company grows, you may need expertise on a part-time or fractional basis. Hiring a service partner can help you access the help you need without having to hire a full-time, mid- or high-level employee.

Finding trusted service partners can help you improve operations and carve out the time you need to focus on business development.

“It’s so important to trust the partners you outsource to. Come prepared with a list of questions and listen to the answers. Will this vendor’s approach deliver the result you need? Are they willing to customize the approach to fit your industry and business requirements? Make sure that they’re going to help your growth and not impede your business.”

– Staffing business owner

Technology

Investing in the right technologies can bring many benefits to your company as it grows, including greater efficiency and responsiveness as well as improved visibility into your business processes and performance.

As the number of staffing placements increases, systems for applicant tracking, recruiting, time-clocking, onboarding, and payroll can help you scale sustainably. Similarly, as your internal staff grows, you may want to invest in collaboration and communication systems, such as Monday, Basecamp, Teams or Slack to maintain coordination as the team expands.

Factoring

For staffing agencies that need to finance rapid growth, payroll factoring (also known as invoice factoring) could be the answer.

Invoice factoring is an ideal financing option for staffing companies because it accepts unpaid invoices as a type of collateral. The invoice factoring company advances funds against the invoiced amount to free up cash that can be used for any purpose, including payroll.

While staffing companies may be eligible for other financing options, such as merchant cash advances and online loans, these are less attractive because they charge high interest rates and may come with restrictions on how a business can use the loan funds.

Staffing companies can use invoice factoring to receive up to 95 percent of the cash value of outstanding invoices. In addition, factoring companies often offer additional administrative services, such as accounts receivable and collections management, which can lighten the burden for companies that are growing quickly and feeling stretched.

“AR Funding has not only ensured I have the cash I need to grow but has also been very helpful in helping me understand what’s happening with payment, keeping our books accurate and updated, posting the correct payments to the correct invoices. I don’t know that we could have done it without them.”

– Staffing business owner 

The flexibility to growth

There’s no question that growth is on the horizon for staffing companies. But the level of growth and the speed with which it happens can be unpredictable. The key is to be prepared. By exploring your options ahead of time, including the operations you can outsource, the technologies you can integrate, and the financing you can access, you can ensure that you are ready to embrace new business when it comes your way.

Find out how much cash you can access to finance growth through invoice factoring. Talk to a financing expert at AR Funding today.