Today’s guest blogger is Daniel Crick. Daniel manages all client engagement for Headcount Management. Besides being an NPA vendor and speaker, Headcount currently services multiple NPA clients. Headcount is a leader in back-office solutions designed specifically for staffing agencies.
Headcount services include Employer of Record (EOR), Agent of Record (AOR), IC compliance, payroll funding/processing, workforce deployment, global expansion, administrative outsourcing, workers’ compensation, GL insurance, HR support, risk management, and more. Payroll Plus, their newest initiative, is the industry’s easiest way for agencies to produce weekly payroll, invoices, and profit reporting. Since 2008, Headcount has helped staffing firms across all 50 states mitigate liability, reduce costs, and maintain full hiring compliance.
It’s not always enough for recruiting firms to work with the most qualified applicants and sought-after clients. Staffing agencies also need to consider seamless delivery of their services and the customer’s perception of that delivery, which in turn means more business. Unfortunately, before your clients pay an invoice, your firm will incur almost all of the costs associated with paying employees (their payroll, taxes, insurance), possibly causing a strain on finances. Having the right financing structure in place will relieve those pressures and allow you to service even more clients and pay more candidates.
Typical client payment terms can run anywhere from 30 to 60 days; this means you will be paying employees for about six weeks before you are reimbursed and paid. The endless “pay and wait” cycle makes it essential for recruiting firms to have access to a substantial pool of working capital. Tapping into available cash flow, as needed, enables a business to easily deliver on current contracts as well as cover expenses on future recruiting wins with zero cap on potential growth.
Funding Staffing Agencies: It’s Not What You Make, It’s What You Keep
Finding funding for a recruiting business is the easy part. There are countless lenders ready to offer capital for a new business. However, it’s important to know that not all financing options and terms are created alike. Every possible solution brings with it pros, cons, and a multitude of other factors, including:
- Lending structure
- Approval process
- Turnaround time
As a new entrepreneur, it’s essential not only to know how your financing model will impact your business but also how it will impact the way your customers perceive your business. Put simply: offering candidates consistent, uninterrupted payment (without having to pressure customers for reimbursement) is one of the best ways to build both your brand and your brand’s reputation.
Which Financing Option Makes the Most Sense for Your Recruiting Firm?
Understanding the different options available can provide the insight needed to find the best way to finance your new recruiting firm. Some common funding strategies include:
Small Business Loans
Traditional bank financing does have some initial perks, such as lower interest rates and a wide range of lending products. However, most conventional lenders avoid risk as much as possible. They often opt to go with a “sure bet,” typically looking for proven companies with well-established pipelines and revenue streams. As a result, startup business owners often have to tap into their personal assets as collateral to secure a loan.
Additionally, conventional lending options are notoriously slow, requiring extensive paperwork and an exceptionally lengthy approval process. Worse yet, while a small business loan may increase liquidity, it doesn’t build up the infrastructure needed to manage the funds properly. You’ll still have to oversee every payment made to ensure your candidates get paid on time.
Private Investors (aka Borrowing From Friends and Family)
At first glance, borrowing from your personal network may seem like a good idea. Mom and dad probably don’t care about your credit status, and if you have an extensive network of willing lenders in your friend circle, it may seem like you have a fairly infinite funding pool. However, taking money from private investors is risky—especially if you find yourself struggling with payment terms. Nothing can ruin the next holiday dinner faster than reneging on a loan from a family member.
Outsourced Payroll Financing
For many new staffing agencies, outsourced payroll financing proves an ideal solution. A third party payroll company offers fast approval, no fees, and access to unlimited funding, allowing recruiting companies to borrow what they need when they need it. Additionally, unlike a loan, working with a payroll company doesn’t acquire debts on your book, preserving the financial health of the organization.
Most importantly, an outsourced payroll company doesn’t just fund your operations; an established vendor also manages a multitude of mission-critical Employer of Record (EOR) services. The right payroll funding provider can help build out your new company’s internal network, adding a crucial layer of infrastructure that helps support business—while you stay focused on growing your business.