Starting a Staffing Agency
By: James Sutton
Opening a Staffing firm can be quite the accomplishment and adventure at the same time. Many people I speak with are interested in how I got started and how I grew my firm to be a million dollar company in such a short time frame. I always respond by saying that it wasn’t easy and it entailed a lot of planning, executing, rejection, and most importantly – grey hair. Starting a staffing firm sounds easy to many people initially, but until they actually try and open one up, they won’t know all the particulars needed to be successful. There are many legal hurdles, insurance requirements, contract obligations, and cash requirements needed to get a firm off the ground. In this blog, I will discuss what I went through in order to get my firm opened and to profitability, let’s get started.
First off, I started my career in Human Resources and worked for the Fortune 500 bracket for about 5 years before I jumped into Staffing and Recruiting. HR taught me a lot about how the recruiting process worked within large companies and what happened after candidates were received from 3rd party recruiters, something many recruiters are not experienced with, in this industry. Coming out of HR gave me an edge in the staffing world, being I knew the ropes and language of HR, and I could communicate that when attempting to get on with a new company. This for sure helped me leverage new contracts and recruit higher level talent in the long run. After 5 years in the hamster wheel, I decided it was time to launch out and create CertaStaff.
In 2011, I researched as much as I could about how to open up my own firm before I took the plunge, and one of the major questions I had, was how much capital was required? I read several articles that stated everything from as little as 10k to as high as 50k in cash needed. I found this to be half true, it’s much more than 50k in total. One major cost that is not associated with opening up your own business is your personal living expenses for the first year. This seems to almost always be forgotten when discussing new ventures. For instance, year one of a small business is much like a newborn infant. You have to be there 24/7 and not take food out of the baby’s mouth – in this case “money”. Your new business has to grow and be able to make money and re-invest that money the first year, which means that you will need another account to live off of in the meanwhile. On average (depending on how big your family is), you may need anywhere from 50k-80k a year to support yourself and your family while your business is starting to grow. So, with this being the case, I recommend adding this amount to your capital requirements needed to open your agency, and could be the difference between making it to year 2 or flopping completely within the first 6 months.
Now comes the part of how much you need to just open up the doors, well, depending which city you are living in, you should start with a minimum of 60k and if you live in a high-cost area (like NYC), that number could be as high as 120k. The majority of this money will be put in a reserve payroll account, for staffing headcount and financing new contracts – about 75%. The remaining 25% will be used for opening up operations. This would include everything from leasing your first office space, furniture, websites, job sites, insurance, hiring staff, marketing, and etc. You should plan on working this Operating budget for periods of 90-120 days before seeing any revenue come in. The trick is to develop business from day one and get new contracts in place ASAP! Once you have done that, you must start placing the staff immediately and start billing out; usually these invoices have a Net-30 day invoicing period on them, so plan on adding another month onto the time you actually start billing clients as well. This is what’s known as working a full-desk – finding the clients and fulfilling the job orders at the same time. It is essential that you master this piece of the process, if you want to build and grow a successful firm. You can’t just hire people to do it for you, because you as the owner must put your hands on this process and own it. It is very important that the head of the company, knows what it’s like to their own due diligence on each potential client. It’s up to you to deem if a company is a good client or not, any mistakes in this crucial function within the first year can bankrupt you, if the client decides not to pay up!
Starting a staffing firm can be grueling and often difficult to get off the ground, but when you do, it can make you a very wealthy person. The key is differentiating yourself within the industry, because there are so many firms out there and they are all competing amongst each other. Which career areas do you specialize in? Which industries do you have experience with? Can you Recruit or Staff in other states? And most of all, why should I use your firm? All these questions are very important to understand and consider before spending your first dollar opening up. Research and planning are essential in every new business and that includes the staffing & recruitment industry. Being prepared with a detailed business plan and capital requirements will put you in a great position to succeed, but making it to profitability – is all sales. Good Luck!