If you’re thinking about starting a staffing company, the first thing you need to really think about is your working capital cash. You will, in fact, need a lot of staffing company cash at the outset because of the inherent nature of the industry.
Here’s a short list of the most important uses for working capital:
- Payroll. This is without a doubt the most important consideration of them all. Your temporary workers are the lifeblood of your company without which you can’t qualify as a staffing business.
But here’s the rub: you’ll need to make sure that you have enough money to cover payroll for all your workers, and that means having the payroll cash ready each week.
At the same time, your customers are companies which have their own red tape procedures to deal with. They’ll need to verify attendance, work records, overtime, and the number of workers. All these need time, so it’s common for a company to take as long as 50 days or more to pay the invoice for your services in full.
So that means you’ll need to make payroll even though your customers haven’t paid you yet.
- You’ll need to get the word out that you’re hiring temporary workers and that means spending money for advertising. You’ll probably need a website, and then you may have to hand out fliers and even pay for newspaper ads too. This is going to be a constant drain on your cash, because many workers will leave your company when they’re offered permanent jobs by other companies.
- Training your workers. In an ideal world, your workers have all the necessary skills that your customers are looking for. But we don’t live in a perfect world, so that means you may have to offer some training modules for new hires and even refresher courses for older employees.
For some situations, your workers may have to take special aptitude tests to confirm that they have the necessary skills needed by your customer-companies. This is common in industries like health care, in which workers must have the necessary credentials and pass the needed tests.
- Paperwork fees. Running a staffing company means paying special taxes, and of course you will need to take insurance premiums into consideration. Coverage for your workers is often mandatory, and failing to do so creates legal risks for you.
- Advertising for customers. You also need to find more customers for your business to survive—this is a common goal of advertising after all. But this can also be a double-edged sword for your company. The more customers you get, the more cash you need to pay for the additional hires.
Of course, some of the other uses for staffing company cash are much like what any company would need, regardless of industry. Paying rent and utilities will also need to be covered. Add them all together, and that means several sources of funding, such as bank loans, venture capitalists, and factoring companies, must be considered.