how to start a staffing agency

Interested in starting a staffing company?
Now is the time to be your own boss

If you have ever considered forming your own staffing company, now is the time. In today’s business climate, economic experts see a growing need for temporary and contract staffing agencies. Companies in many industries have discovered that it is both efficient and economical to outsource many of their staffing needs. The U.S. Bureau of Labor Statistics has forecast that staffing services will remain near the top of the nation’s fastest-growing industries into the future. Their economists have predicted that more jobs will be created through staffing companies than in any other industry over the next few years.

Good staffing companies that are reliable and responsive to customers needs are in high demand. One of the positive aspects of starting staffing agency is the new business owner’s ability to start small and scale up. Staffing is a very personnel-intensive human capital field but it does not require high-cost equipment or large facilities to get started. Some people launch their businesses from tiny offices and keep their operations small until they are ready to expand and open a larger brick and mortar business.

Who Starts a Staffing Company?

The typical entrepreneur behind a new staffing start up company has been working in the industry for other staffing companies. This experience — whether for many years or even a short time — helps them improve their chances for success. If you’ve worked for a variety of companies, then you have likely seen what works and what doesn’t work. You know the mistakes you want to avoid. You have ideas on how your company can improve on what you’ve experienced in the past.

A staffing entrepreneur is likely to be a “people person” who has a real passion for helping businesses and employees find win-win solutions. You may especially enjoy different aspects of your operations such as recruiting and training or you may be good at sales and signing up new customers. You are likely a good leader who can motivate employees to do their best work. The road to success will be easier if you are a person who can juggle many tasks and stay focused.

Will you specialize in a certain industry?

start-staffing-companyYour experience in the staffing industry — along with research into your local and regional labor markets and employers – can help you decide what kind of staffing agency you want to open. Many staffing agencies are generalists, serving a variety of industries. Others become experts in one field. Depending on your local economy, your own strengths, and your personal and professional networks, you may want to specialize.

Many industries rely on temporary workers. These industries typically include the following fields:

  • Office and Clerical
  • Nursing and Medical
  • Information Technology (IT)
  • Industrial and Manufacturing
  • Janitorial and Maintenance
  • Security Services
  • Hospitality and Food Services
  • Oilfield Services

Specializing in a particular industry allows you to develop an expertise in the area and keep up with changing trends in that field. You limit your competition only to other staffing agencies specializing in the field, rather competing with every staffing agency in the area.

How do I form my company?

Starting a staffing company typically begins with forming a limited liability corporation or other legal business structure to help protect personal assets. After coming up with a name for your new venture, you’ll reach out to your state government to ensure that the name has not been claimed by another company. If so, you propose other names until you have one that is available. The next step is completing and filing your articles of incorporation and other common documents required of any new company.

You will also need to research and complete industry-specific paperwork. Find out which state requirements address the staffing industry and ensure you’re operating as a legitimate staffing company. Familiarize yourself with workers’ compensation, business licensing, and all taxes collected by the federal, state, and municipal governments. You will learn about Federal Unemployment Taxes (FUTA), Social Security and Medicare (FICA), and other taxes.

You will likely be working with a business attorney on some of these documents and registrations. You may also want your lawyer to draft or review all your legal agreements and employment contracts for both employees and customers. These documents will need to state which parties hold which responsibilities.

What kind of insurance do staffing agencies purchase?

Work with a reliable insurance agent with experience in insurance policies for staffing companies. General liability insurance will protect business owners from claims for property damage, personal injury, and other concerns. Property insurance protects your company’s office space, equipment, and other assets.

What will your office need?

First off, purchase or lease enough computers and printers to run the business side of the company. If you are managing bookkeeping in-house for your startup, be sure you have the correct software to maintain the right records. If you are starting off with inhouse payroll processing, be sure your systems are up and running to pay your employees every week, which is standard in this industry. Buy needed office supplies, a phone system, furniture and filing cabinets. Your Internet provider and phone line provider must be reliable.

How can you best serve your customers?

In this business-to-business industry, staffing companies meet a vital need for filling open slots, seasonal jobs, and other vacancies. Whether a company seeks temporary workers for long-term contracts or hires temporary workers to serve out a probationary work period before making them full-time permanent employees, staffing agencies serve a variety of customers’ employment needs.

Finding the right people for each customer is critical. Some applicants are looking for a career change and starting as a temporary worker offers a unique opportunity to test their plans. Some applicants prefer part-time work or the flexibility of working at different times of the year. Listening to applicants during their initial interview with you helps you see how their goals match the customer’s job needs.

How do you find employees?

staffing factoringYou can start by advertising job openings online, at job fairs, in local newspapers and magazines, and on college campuses. Your website should be one of your recruiting tools. Online business directories, as well as the traditional phone books, are other places to post your help wanted advertisements.

Ensuring that applicants have the skills and the aptitude for the job is of primary importance. Some staffing agencies have sophisticated skills tests and examinations; others rely on written spelling, math, and critical thinking tests.

How will you find customers?

You will want to focus on reaching out to area employers as early and as often as possible. Join your community’s Chamber of Commerce. Use your network of friends, family, and business contacts. Knock on doors and call area companies. It is important to begin to develop a pipeline of potential customers even when you’re in the early stages of forming your business so that when you do open your doors, you won’t start from scratch.

If you need marketing assistance, hire a good sales person with experience in the staffing industry. Startups need a strong website and social media presence. Don’t neglect traditional marketing: you will also want a professional brochure and targeted direct mail campaign for a multi-channel marketing effort.

Select an organizational structure for your staffing agency

Compare the general traits of these business structures, but remember that ownership rules, liability, taxes, and filing requirements for each business structure can vary by state.

Business structureOwnershipLiabilityTaxes
Sole proprietorshipOne personUnlimited personal liabilityPersonal tax only
PartnershipsTwo or more peopleUnlimited personal liability unless structured as a limited partnershipSelf-employment tax (except for limited partners)
Limited liability company (LLC)One or more peopleOwners are not personally liablePersonal tax
Corporation – C corpOne or more peopleOwners are not personally liableSelf-employment tax
Corporation – S corpOne or more people, but no more than 100, and all must be U.S. citizensOwners are not personally liablePersonal tax or corporate tax
Corporation – B corpOne or more peopleOwners are not personally liableCorporate tax
Corporation – NonprofitOne or more peopleOwners are not personally liableTax-exempt, but corporate profits can’t be distributed

Source: US Small Business Administration

Register your staffing agency name to protect it

You’ll want to choose a business name that reflects your brand identity and doesn’t clash with the types of services you offer. Once you settle on a name you like, you need to protect it. There are four different ways to register your business name. Each way of registering your name serves a different purpose, and some may be legally required depending on your business structure and location.

  • Entity name protects you at state level
  • Trademark protects you at a federal level
  • Doing Business As (DBA) doesn’t give legal protection, but might be legally required
  • Domain name protects your business website address

Source: U.S. Small Business Administration

Get a federal tax ID number for your staffing agency
Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. It’s free to apply for an EIN, and you should do it right after you register your business.

Your business needs a federal tax ID number if it does any of the following:

  • Pays employees
  • Operates as a corporation of partnership
  • Files tax returns for employment, excise, or alcohol, tobacco, and firearms
  • Withholds taxes on income, other than wages, paid to a non-resident alien
  • Uses a Keogh Plan (a tax-deferred pension plan)
  • Works with certain types of organizations

Source: U.S. Small Business Administration

Get a state tax ID number for you staffing agency

The need for a state tax ID number ties directly to whether your business must pay state taxes. Sometimes, you can use state tax ID numbers for other functions, like protection against identity theft for sole proprietors. Tax obligations differ at the state and local levels, so you’ll need to check with your state’s websites. To know whether you need a state tax ID, research and understand your state’s laws regarding income taxes and employment taxes, the two most common forms of state taxes for small businesses.

The process to get a state tax ID number is similar to getting a federal tax ID number, but it will vary by state. You’ll have to check with your state government for specific steps.

Source: U.S. Small Business Administration

Identify startup expenses for your staffing agency

Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. As a staffing service, you may fall into all three categories. You’ll face different startup expenses depending on your business type. There are common startup costs you’re likely to have no matter what. Look through this list, and make sure to add any other expenses that are unique to your business.

  • Office space
  • Equipment, software and supplies
  • Communications
  • Utilities
  • Licenses and permits
  • Insurance
  • Lawyer and accountant
  • Inventory
  • Employee salaries
  • Advertising and marketing
  • Market research
  • Printed marketing materials
  • Making a website

Source: U.S. Small Business Administration

business planDo you need to write a business plan?

Yes, you need a map with goals and methods on how you’ll achieve those goals. Your business plan is your blueprint, with timetables and details on what you want to accomplish and how you’re going to do it. You’ll identify what will make your staffing company stand out from the competition. Your plan should include your strategies for sales and marketing and signing new customers. It should touch on how you are going to evaluate your company’s progress toward being the best staffing company in your area.

Most importantly your plan will include your budget and revenue projections. You will put together rate structures and calculate your profit margins. Your business plan will outline how you will access working capital while you wait for your customers to pay.

How can you manage your cash flow?

Startup staffing companies can face significant cash flow challenges for two main reasons. First, before a staffing company owner can recognize any revenue, they often have invested weeks or even months in recruiting, evaluating, training and placing an employee. That employee may already be on the staffing company’s payroll, but they are not contributing to the company’s revenue stream. Second, many customers negotiate 30-day terms or even 45 days or 60 days. Even though you have been paying those employees each week, you may not receive payment for that employee’s work from your customers until next month or longer.

These dual challenges are why so many staffing companies turn to invoice factoring to speed up their cash flow and comfortably cover their payroll. Because invoice factoring is not a loan, the staffing company owner incurs no debt. Factoring simply advances what you are already owed to you so you won’t have to wait for customers’ checks. As some business owners quickly learn, factoring turns your stack of accounts receivable into cash in your pocket.

Interstate Capital is the ideal solution for staffing agencies

Since 1993, Interstate Capital has helped staffing companies get paid upfront for their services. With their advances, staffing company owners can keep up with payroll, taxes, insurance, marketing, utilities, and all the other expenses they face each month. Staffing company clients of Interstate Capital have been able to set aside funds to enable them to take on new customers and increase their revenue. As the staffing company grows, so does their profitability.

When you’re ready to take the step to be your own boss at your own staffing company, contact Interstate Capital. It all starts by filling the form on this page to receive a complimentary cash flow consultation.