5 things you need to know when staring a temp … · your staffing firm against client bankruptcy...

Crucial Items to Consider to Help Ensure Your New Enterprise’s Success!

5 THINGS YOU NEED TO KNOW WHEN STARING A TEMP-STAFFING AGENCY

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INTRODUCTION

CASH FLOW MANAGEMENT IS MORE THAN JUST PAYING THE BILLS

PAYROLL ADMINISTRATION IS MORE COMPLICATED THAN YOU THINK

YOUR AGENCY IS ONLY AS GOOD AS ITS’ CLIENTS

YOU CAN NEVER HAVE ENOUGH INSURANCE COVERAGE

SPECIALIZED STAFFING-INDUSTRY PROFESSOINAL ADVICE CAN BE HARD TO FIND

CONCLUSION

A PARTNER YOU CAN TRUST

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5 THINGS YOU NEED TO KNOW WHEN STARING

A TEMP-STAFFING AGENCY

Crucial Items to Consider to

Help Ensure Your New Enterprise’s

Success!

TABLE OF CONTENTS

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IntroductionStarting a new business is an exciting venture! But in that excitement, it’s easy to overlook important, practical business matters that come along with setting up and maintaining a successful staffing agency operation. This is especially true if you don’t know what these matters are, and given the fact that most do not present themselves until you are well entrenched in the business, due to the peculiarities of the staffing industry.

Our goal here is to minimize the likelihood of you later yelling, “I wish I had known about that before I got started!” We want to make sure you know what you need to know now, before you get started, to help you properly set things up from the get go!

Therefore, here’s five pertinent things to keep in mind when first starting your temp-staffing agency:

1. Cash-Flow Management is More than Just Paying the BillsLike any industry, temp staffing has its own, unique cash-flow challenges—which is troublesome for both start-ups and established agencies alike.

The Payroll-Client Receivables Cash Flow Gap

A temp-staffing agency specializing in the placement of general labor workers is a low-margin, high-volume business; there’s a lot of competition, considerable overhead, and not much room for error. To be profitable, you need an army of temps working in the field; but like any army, they expect to be paid regularly. Paying your workforce weekly or bi-weekly can become problematic if your clients are paying you every thirty to sixty days. When you factor in your own thirty-day billing cycle, it could be three months before

you start collecting receivables. So, how do you stay solvent for those three months, while still making payroll every week?

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S T A R I N G A T E M P - S T A F F I N G A G E N C Y

A payroll financier can help but it can be tough to choose which type best suits your agency. A factoring firm pays you a certain percentage of an invoice to help you meet payroll demands, but their fees are not always what they seem—especially if you have a client who pays past 30 days. If you had a crystal ball and knew the payment terms of all of your clients, this may seem like a good solution; but all it takes is one late paying client for this to be a very expensive way to finance.

A line of credit from the bank is an option too—as long as you stay consistent with your payroll needs and payments. For agencies specializing in the placement of general labor, volumes may be low during slow times, but can grow ten times that when clients are busy. Banks don’t always understand the ups and downs of staffing, and often won’t extend a credit line or payment terms when it’s needed most.

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It only takes ONE late payment from a client for factoring

to become an expensive means of financing your

payroll.

A back-office solutions provider can provide payroll financing, along with their many other service options, understand the fluctuations of staffing, and offer fees that don’t increase depending on client payment terms. Full-service funding typically costs a new firm around three to five percent of total invoices, and enables you to pay your workers on time and correctly, while promoting a positive brand image in your market.

2. Payroll Administration is More Complicated Than You ThinkWouldn’t it be great if at the end of the day Friday, all the timesheets were handed in completely legible, signed by the supervisor, and matched what you have in your database? In the world of high-volume temp staffing, this rarely happens, and Monday is usually spent chasing timesheets and signatures, and trying to make out handwriting that would make any doctor proud.

Ensuring Employment Standards

As the owner of your firm, you serve as the employer for your temp workers out in the field. This means not just calculating the 40 hours worked at minimum wage for a worker, but also determining the amount of tax to be deducted from their paychecks, as well as the amount of tax that you owe as an employer.

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Making payroll even more complicated is having to know when a worker qualifies for overtime, vacation, and statutory holiday pay. These rules can differ locally and nationally, but as an employer, it’s your job to know them and adhere to them. Proper records of each payroll calculation and transaction are mandatory, and if you have to undergo an audit, a lack of records, miscalculated taxes, or non-compliance with benefits will mean penalties and fines.

If an error is discovered, whether it’s in reported hours, pay rate, overtime pay, or any other area, it can’t simply be erased; you have to take the time to find the source of the error, amend the payroll reports, and ensure that the error isn’t repeated in the future. If you’re handling things yourself, the time spent resolving a single discrepancy can throw an entire work day off schedule.

Payroll may seem like a small part of running your staffing firm, but it can quickly become very complicated as your temp roster grows. Ensuring you have the proper expertise and resource in place via a third-party provider can help save you time and avoid potential penalties.

Preparing Invoices

Each client will have specific needs when it comes to invoicing. As such, make sure you know upfront who the invoicing contact is, as it will more than likely differ from your direct contact at the company. A phone call to that person directly before you send out the first invoice is always a good idea, and can save you from finding out 45 days later when you call to collect that the invoice was rejected due to a missing PO or wrong contact. Further, attaching timesheets signed by the job site supervisor to every invoice ensures that the company has the back-up they need for faster approval. This signed back-up is also your proof should the invoice be disputed.


3. Your Agency is Only as Good as It’s ClientsAmong the many pitfalls associated with running your own temp agency, bad clients can be one of the most troublesome.

Getting an order from a new client can be exciting, and it’s tempting to fulfill their staffing needs immediately without following some best practices, such as credit checking. However, a credit

check can show you if the company has a hard time fulfilling their financial responsibilities, and save you from a poor partnership.

Too Good to Be True

As a new staffing firm, you can expect a client with no previous experience with you to request a trial run before trusting you with their complete staffing needs. However, you should be wary of a new client who asks you to fulfill all of their needs, or asks you to replace a current vendor.

Again, make sure to check their credit rating—they may have a history of bad debt in the staffing industry, and are just looking for the next fresh face to lead astray for the next 60 days until you realize that they are not going to pay the bill.

In Harm’s Way

For some clients, the word “temp” means “disposable.” They expect to use temps for dangerous or demanding jobs that they would not ask their own employees to handle. They do this so, if a workplace accident should occur, it does not affect their workers’ compensation, but rather they pass the responsibility and costs onto the workers’ comp account of the staffing firm.

Workplace accidents with the wrong kind of client can end up costing you more than just money; not only does it put the health and safety of the temp worker in jeopardy, it could also cost you your reputation in the industry from both a client and candidate perspective.

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Create an Ironclad Service Agreement

A good service agreement with your client can ensure both parties’ best interests are upheld. From your perspective, you want to ensure that your client signs off on rates, payment terms and their commitment to the health and safety of the workers.

Of utmost importance, your service agreement needs to include billing information regarding statutory holiday pay, a clause about shared responsibility for proper notice periods, and a non-solicitation section that prevents your client from hiring on your workers. Your service agreement can make or break you when it comes to the law, so it’s essential that it be drafted by not only a legal expert, but also by one with deep understanding of the staffing business, and the specific legislation under which it operates.

Engage a legal expert that is

well versed in the nuances of the staffing industry

to draft your client service agreements.

4. You Can Never Have Enough Insurance CoverageTo remain competitive, you have to match or have better insurance than the big players in the staffing industry. But as a smaller temp-staffing agency, you do not have the bulk purchasing power that larger temp agencies enjoy. That means you will likely be paying higher rates for the various policies you need to purchase.

Meeting Client Demands

It is unavoidable: some clients are going to expect you to have insurance coverage exceeding normal industry standards. They may have unusually expensive equipment or merchandise, or the nature of their business may be costlier or more hazardous than is typical. Whatever the reason, if you want them as a client, you must have the level of insurance it takes to make them feel comfortable.

Insuring Against Theft

When one of your temps first arrives at a client site, the client views them as an unfamiliar stranger and represent an unknown risk factor. In light of this, many clients will expect you to insure your temps against possible theft of equipment, materials, and even information.


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Insuring Against Damage

If one of your temps breaks a stapler or drops a coffee pot, the client will probably just write it off. But what if they damage a forklift? Or knock over a pallet of fragile merchandise? With a damage total running into the thousands of dollars, you are likely to hear about it from the client. If you don’t have the appropriate level of insurance in place, you will be left with having to pay the bill.

Receivables Insurance

When economic downturns have happened in the past, many companies ended up closing their doors—leaving their staffing providers with unpaid invoices. To avoid this outcome, a receivables insurance policy can protect your staffing firm against client bankruptcy and other financial difficulties—paying back up to

85 percent of the invoice value, and allowing your staffing firm to recoup what was paid out in payroll and government taxes. This coverage may seem like a superfluous extravagance, but when faced with a large unpaid invoice, its cost is negligible compared with the value of the potential loss.

Finding the Right Insurance Partner

The staffing industry is unique, and so is the insurance needed to not only go up against the multi-nationals, but protect the interests of both the staffing firm and its clients. When starting a staffing firm, it’s imperative you find an insurance partner that understands the industry. You do not want to find yourself paying huge premiums for an insurance package that has too much of what you don’t need, and too little of what you do.

5. Specialized Staffing-Industry Professional Advice Can Be Hard to FindYour passion for the staffing industry drives you, the entrepreneur, to move from employee to owner. But the red tape that comes along with being your own boss can be daunting.

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Entrepreneurs know they must seek out the advice of professionals like employment lawyers, accountants and financial consultants to help them understand the steps needed to not only protect them legally, but also to ensure that they have met their due diligence when it comes to government compliance, reporting, and remittance.

But when it comes to staffing firms, generic business consultants, whether they be a lawyer or an HR expert, may not understand the unique realities of the staffing industry well enough to be able to best advice and protect you, their client.

The Need for Ongoing Expertise

Not only does your staffing firm need experts that are keeping abreast of the ever-evolving changes in government legislation, your staffing firm needs these advisors to understand how these regulations impact your business, and be able to make the necessary changes to all your policy and contract documents to keep them current. Examples of this include legislation around holiday pay, overtime, and termination pay.

These kinds of new regulations directly affect how contract staffing companies do business, and must be reflected in both the contracts signed with clients, and the employment agreements with temporary employees. As alluded to earlier, a general employment lawyer not well-versed in staffing may not understand the importance, in light of these new laws, of including a co-responsibility clause into client agreements—leaving a staffing firm open to liabilities and unexpected costs.

Who Do You Go to for Advice When a Worker is Injured?

You do your best to ensure the safety of your temp workforce, but accidents still just happen. When they do, workers’ compensation boards and commissions are there to ensure all proper procedures have been followed, and if not, to lay fines and penalties against the employer. But it is not their job to provide expertise to employers about how to conduct themselves during the investigation, including managing the physician consultations, and properly submitting the appropriate forms; never mind advising how to dispute a claim.

When it comes to making sure your staffing firm operates efficiently and compliantly from start to finish, it’s best to

call up a consultant with industry expertise!

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Engaging a consultant that knows and understands the staffing industry couldn’t be more important when it comes to representing your rights in workers’ comp cases. But retaining an employment lawyer to ensure the rights of the staffing firm are upheld and effectively represented can cost thousands—money clearly not well spent if the lawyer’s first-hand knowledge of the staffing industry, and your firm in particular, is limited.

Acquisition, Expansion, and Retirement

Beyond the legality issues, an expert who understands the staffing industry can help you evaluate the worth of a company that you may be looking to acquire or merge with. Someone without staffing expertise may not understand how the worth of a permanent placement firm is very different than one with a solid book of contract business. For instance, clients of a permanent agency often walk away when the principal leaves (diminishing the firm’s value), while a contract-staffing business, based on steady cash flow, is worth much more—sustaining a business through any change of ownership.

That same industry-insider expertise is also invaluable when you are looking to sell your business and retire. Ultimately, proper valuation is paramount to your successful exit, and a lack of accurate market knowledge could leave you dangling for months without attracting a buyer. Before you realize the price you are asking is too high; or even worse: the business quickly sells before you discover you could have sold for much more for your retirement cushion.

ConclusionNow that you have a better idea of what you’re getting into with your new business venture, hopefully you’re all the more excited and ready to move forward! But if any of the information provided here has you contemplating where exactly to start or feeling overwhelmed by the vast responsibility that comes from starting your own temp-staffing agency, know you’re not alone in that sentiment or on this path!

As highlighted throughout this eBook, engaging a back-office provider can enable you the time and energy to focus on building a solid team, finding clients and candidates, and growing your new business venture, while receiving guidance and peace of mind via a trusted advisor. Letting someone else handle the administrative, legal, and financial nuances that come with running a staffing firm is a sure way to guarantee your new enterprise’s success!

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Learn more about how we can help you ensure your startup staffing firm is

best poised to succeed,call 888-270-3579 or visit www.people20.com

A Partner You Can TrustAs a part of our comprehensive back-office and global, employer of record (EOR) solution, People 2.0 provides expert-driven advice and support for all things staffing related. Whether you’re seeking guidance on how to get your temp-staffing agency up and running, looking for back-office operations support, or ensuring proper compliance, People 2.0 serves as a strategic resource in helping you efficiently and profitably place talent, while growing your business!

This material is for informational purposes only and does not constitute advice. No reliance should be placed on the information contained and guidance should be sought from People 2.0. No information contained in this eBook may be reproduced or copied in any format without the express permission of People 2.0.

©2019 People 2.0

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5 things you need to know when staring a temp … · your staffing firm against client bankruptcy...

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