How to Make Your Staffing Agency Financially Resilient

Many see the US staffing industry as a land of opportunity. Recent estimates by the American Staffing Association value the industry at over $200 billion. However, despite this market, it’s estimated that 50% of US-based staffing agencies fail within their first five years of operation. 

A staffing industry can fail for a number of reasons, such as market saturation or poor customer service; however, one key reason that many agencies do fail is financial sustainability. 

While it can often be easy to get business in, many staffing agencies struggle to develop a long-term plan that considers the overheads, compliance costs, and even legal fees associated with expanding a staffing agency in the US. 

The key to growth is having a sustainable and stable financial base from which to operate. 

What is Financial Resilience?

Financial resilience is more than keeping new business flowing in; it’s about maintaining a consistent plan that considers both the short-term and long-term goals of your business.   

For example, if you constantly get new contracts but find yourself short of cash due to late invoices, your agency will not be able to grow. 

Similarly, if you try to expand too quickly without being able to afford proper management and find yourself continually receiving state and federal fines due to misclassifications, your resilience may suffer.

Ultimately, to make your staffing agency financially resilient, you need more than just money coming in; a longer-term view can fuel your agency's expansion. 

What Steps Can I Take to Ensure My Staffing Agency is Financially Resilient?

You can take innumerable steps to ensure your staffing agency stays resilient, and most of them come down to good practice. However, there are three considerations specific to staffing agencies that help determine your overall success. 

Consider Your Capital 

It’s obvious, but setting up a staffing agency isn’t free. There are the initial costs, such as registration fees, office set-up, web domains, and initial staff. These can rack up to be a significant sum, especially if you’re expanding into the US for the first time. In fact, many estimate that the cost of starting a staffing agency in the US starts at $65,000 and can climb to almost $150,000.

However, beyond these initial costs, which you may expect for any business, it’s also worth noting the large amount of capital needed to pay your placements. In the US, many companies pay their contact workers every two weeks. Given that the average invoice payment time in the US is 60+ days, this often leads to staffing agencies falling short of paying your contract workers. 

If you don’t have enough resources to self-finance payment, staffing agencies have few options, such as an invoice factoring company. These companies will buy your unpaid invoices and give your staffing agency an advance. 

However, it’s worth noting that most invoice factoring companies have strict eligibility requirements and require extensive contracts, so they often don’t offer the service to newer staffing agencies. Read more about payroll funding in our guide to invoice financing for staffing companies here.

Before setting up your staffing agency, it’s crucial to know you have the capital available to cover those first few months beyond your initial set-up. 

Understand Your Profit 

Your staffing agency's profit margin can determine its resilience. Beyond the obvious problems that come with a low-profitability enterprise, the staffing industry in the US demands that you’re able to be flexible regarding how you spend. 

In the US, the law generally views employment to be “at-will.” This means that an employer can terminate an employee for any reason. At-will employment leads to more wrongful termination lawsuits as it creates ambiguity over what can be considered a justified termination. For example, employees may feel that their employer discriminated against them and sue in court. 

As a staffing agency, you take the legal responsibility for the employee and, therefore, may find yourself in expensive lawsuits. As a result, it’s vital to ensure you have enough cash coming in to deal with these lawsuits without falling behind on your other overheads.

On the other hand, if your profit margin is too high, you leave yourself open for a competitor to come in with lower pricing and take up your market share. 

Reporting and Planning 

Ultimately, the only way to ensure your staffing agency is financially resilient is to know your current financial situation and how it may change. It’s easy to get carried away and find yourself in an unsustainable financial position.

Reporting your financials is an essential part of any successful staffing agency. You must know what cash you have and where it’s going. For example, if you’re employing a large number of staff on W-2 contracts, you’ll need to withhold their taxes for the tax year. So, you must be aware that you have the appropriate funds to stay compliant.

However, proper reporting planning goes beyond what money you expect to come in and what you expect to go out. For example, you may be looking to expand into a different state; in the US, each state has its fees and regulations you’ll need to pay. 

In California, the minimum wage is $16 an hour in 2024 compared to Alabama, which doesn’t have a minimum wage. Although it’s worth noting, Alabama employers still must pay a federal minimum wage of $7.25 an hour. 

So, if you’re looking to expand, you would have to ensure you have the resources available to pay a higher wage.

Ascen

Keeping your staffing agency financially resilient can be a full-time job, let alone the responsibilities you’ll have to deal with regarding management. 

We developed Ascen with this in mind. Ascen gives you access to a suite of back-office management tools so you can ensure that your agency stays afloat. Our tools let you manage payroll, bills, and all compliance costs so you know exactly where you’re at. All services are charged as a percentage of payroll, so you know you will only ever pay for what you are using, which means only when you are billing clients for time worked.

We also offer embedded payroll funding, so you don’t have to deal with invoice factoring companies and can ensure your employees get paid on time. 

If you’d like to see Ascen in action, please book a demo here.