How do I protect my staffing company 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, VP of Business Development at Prosperity Funding at (985) 641-8817 or via email at dale@prosperityfunding.com.

Views: 146

Comment by saipeople on February 9, 2009 at 6:42pm
Very good article Dale. I was impressed with your views.

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