Today’s guest blogger is Mark Arrow. Mark is the CEO/President of Headcount Management. Besides being an NPAworldwide vendor, speaker and staffing industry advocate, Headcount currently services multiple NPA clients. Headcount is a leader in back-office solutions designed specifically for staffing agencies. Today, learn how contract staffing can help you sell your staffing agency.
Headcount makes doing staffing deals (also known as: contract, temp, contingent) simple for NPAworldwide members. Essentially, once candidates are placed, Headcount will professionally onboard, insure and payroll employees. Headcount also invoices clients (with your agency’s branding), accounts for all monies, provides detailed KPI’s and profit reports…and of course, profits. The Back Office, their newest initiative, is the industry’s easiest way for agencies to produce weekly payroll, invoices, and profit reporting via agency insurance and funding.
Since 2008, Headcount has helped staffing firms across all 50 states mitigate liability, reduce costs, and maintain full hiring compliance. Here are some testimonials.
There’s never been a better time to own a staffing agency. Yes, the last year brought whiplash-inducing shifts in the job market. But despite rapid changes throughout the economy, there’s still a huge demand for qualified, vetted talent. We recently spoke to one of our agency clients, a sole practitioner, who said he was “having his best year ever” and estimates he’ll earn 800k+ this year!
Recent reports from Staffing Industry Analysts show that “US staffing revenue is projected to grow 14% this year to reach a record of $212.8 billion.” This is great news for recruiters — but even better news for recruiters looking to sell their staffing agency in the near future.
Contract Staffing Should Be Part of Your Agency’s Exit Strategy
Building and running a successful direct-hire staffing agency can make for a great career — but without careful planning, it doesn’t always make for great retirement cash flows. If you’re considering how to sell your staffing agency, or reap long term income, it’s critical to review your current asset and determine how to optimize its value. The first must-have item on the checklist is to ensure your business model includes contract staffing
Offering contracting solutions is the best (and often only) way to package your small staffing agency for sale, especially when first attracting prospective buyers. Like any business transaction, cash is king. When researching potential businesses for purchase, acquiring entities will look for consistent and recurring cash flow. Contracting delivers more steady revenue than the occasional cash bursts that come with perm hires. Running a small staffing agency that offers contracting also looks more appealing to buyers when factoring in overall cost structures and symmetries between your business and theirs.
Perm-Only Positions Pay The Bills — But May Not Pave The Way to Retirement
Many recruiters have built thriving careers filling perm-only positions. Unfortunately, when retirement rolls around, these staffing agency owners quickly realize that while permanent placement is a lucrative way to earn a living, it doesn’t leave them with much to sell when the time comes. Of course, other factors come into play when learning how to sell your staffing agency, such as:
- Vertical (ie: IT, Legal, Admin, healthcare)
- Gross Margins
- Growth trends
- Market position
- Back office support
Even your industry vertical and technology you deploy can prove critical when putting a dollar amount on your business. But none of it will matter to prospective buyers if you don’t have proven success with contract staffing.
Staffing Agencies Specialize in Direct Hire Placements for Many Reasons
Many small staffing agencies specialize in permanent placement hires for various reasons. Some prefer the slower pace of the direct hire model. Others may not want to juggle different placement and pricing models. Some do it simply because direct hire is what they’ve always done, and they want to stick with what they know.
There’s nothing inherently wrong with only offering direct hire placements. However, if you’re running a one-person staffing agency with no employees, you can capitalize on your sole asset — your book of business. Only offering permanent placements can make it virtually impossible to sell your company.
Potential Investors Want Revenue Streams — Not Just Client Relationships
Potential buyers aren’t likely to get excited about past hires you’ve already made and been paid for. They aren’t interested in buying your current client relationships — they want to know they are investing in a company with recurring revenues. Offering contract staffing is the best way to increase the value of your staffing agency and set you up for further success.
Contract Staffing Improves Day-To-Day Benefits of Your Business
The good news: Including contracting in your book of business immediately increases its current overall value and demonstrates future earning potential. The even better news: Contract staffing doesn’t just improve your business exit strategy. Implementing contract staffing in your business model can also elevate your operations now by:
Margins for contract staffing are often more than those for Perm deals. If your agency charges 15, 20 or 25% for a perm deal, compare margins to those for staffing deals. Understanding margins and how to charge will often yield higher ROI than temp deals. A good staffing calculator can help you crunch the numbers of each placement to ensure your agency is, at least, on par with national averages and is exceeding/matching perm profitability.
Many direct hire staffing agencies assume there isn’t enough profit in contract placements to make them worth their time. Fortunately, this is not the case. Even having just ten contractors on assignment, where you’re earning 10 dollars an hour on each, means you’re making $100 an hour or $195,000 annually on just those hires. And that’s without including any overtime they may work — which you will also get paid for
Improving Cash Flow Consistency
Not only does contracting increase working capital in your staffing agency, but it also provides better consistency with your cash flow. Having even a small group of contractors on assignment can help offset the more unpredictable payment cycles often found with direct hire.
Customers love “one stop shopping”. By offering contract staff your current clients will not only stay active but you can count on them for additional revenues. Also, by offering choices to your customers (full time, contract, temp to perm) you may actually be limiting your competition.
Additionally, contracting can increase your professional flexibility and overall work/life balance. Permanent placements typically result in a single fee or payment. However, having contractors earn hourly revenue provides passive income that enables you to take breaks from work and know that you’re still making money.
Enhancing Your Existing Permanent Placement Business
Having consistent cash flow does have its benefits. Knowing that you have a steady income with working contractors provides the confidence (and capital) to be more discerning about how you spend your time recruiting. You may find yourself turning down direct hire jobs you know you’ll never fill to stay focused on finding candidates for more lucrative opportunities. Additionally, expanding your business model to include contracting allows your staffing agency to serve your existing list of clients better when they are looking for talent beyond the traditional direct hire model. Your staffing agency can transition from being their go-to permanent placement resource to being their sole staffing provider.
Helping Your Staffing Agency Adapt to any Job Market
Most importantly, offering contractors enables your staffing agency to provide agile staffing solutions that adapt to any job market or economic climate. Hiring freezes, layoffs, and downsizing are all cyclical, unavoidable factors in staffing. However, companies still have project deadlines and deliverables to meet. Offering contracting services offers an alternative solution to your clients to ensure they keep their operations moving forward.