Organizing for Profit in a Staffing Company 10 Issues to Consider

One of our past Presidents, Calvin Coolidge, famously said, “The business of America is business”. That is obviously true, so it is amazing to me that so many people do not understand business.

Our primary and secondary schools have delivered very little or no training in business. In college, unless you major in business, you can complete four or eight years, even in the best of them, and learn nothing about business. That is amazing, funny, and, tragic.

One fallout from this ignorance is that the very idea of “profit” has developed a negative connotation, associating it with greed. But, just like a doctor who will first listen to your heart and lungs for a primary indication of your health, so, too, a business analyst will look first at a profit/loss statement.

Both will certainly look at other factors, but they will start with the basics.

Profit is basic. It is a primary indication of the health of your business. So, enough said, let’s go for it and get healthy.

Organizing for Profit Issues

Knowing the Numbers

The first step in organizing most anything, is to have a plan. If Elizabeth Warren can have a plan for everything, so can we all.

In profit planning the key strategy will always be some variation of the solid business principle of “Knowing the Numbers”.

It is not only essential to the health of your business but vital to its very existence. Everyone knows about the business plan called “ready, fire, aim”. While that strategy may be a very good idea for some time-sensitive aggressive marketing, it can also be disastrous if management does not really “know the numbers”

“Knowing the Numbers” means all of them, including the costs of contingencies that happen often. Delays in client payments are well known, but the cost of borrowing against these open invoices will add extra costs that you may not be able to recover from the client.

Don’t forget hidden costs like an unforeseen sickness, or family leave that may require hiring and training a temporary replacement.

Contingency Fund

Establishing a contingency fund should be part of your profit planning. It will take the “sting” (lowering profits) out of many unforeseen items like the above but also cover other less serious ones.

In a staffing company it may not be necessary to have a formal depreciation fund for capital equipment, but purchasing computers, software, website updates and redesigns, IT support, networking an office, etc. can be painful if not planned for or otherwise funded.

A contingency fund can also save money on unplanned borrowing.  But having this fund built into your profit planning and pricing will give you some peace of mind as well.

And don’t underestimate the value of “peace of mind”. You want to be in the staffing business not a constant-crisis management company.

Cash Flow Analysis

Depending on the size of your company a formal cash flow analysis may not be necessary. If needed it should be done by an experienced accountant. But even a small company needs to have a very good idea of cash inflows and outflows at any given time. It is really a part of knowing the numbers and, therefore, vital to your business.

Because you are financing a lot of payroll for your own staff and your contract workers, these large cash outflows need to be offset by larger cash inflows to make your Net Present Value (NPV) at any given time, a positive number.

That seems simple enough but when you are also including depreciation, investments, cash flows in and out of several different projects with different schedules it can get quite complex. Errors can be disastrous if you are going to be out of cash for the next six months!

But even if your company may not need a “formal” cash flow analysis, you should cover this still vital issue with your accountant. Because they are (or should be!) very familiar with this issue, it would not take them very long to look at your situation and give you some good advice and direction.

“Seasonality” (my word?)

My own word or not, the idea here is to plan well for the “Seasonal issues” of your business, because, obviously, they can cause cash-flow problems and affect profitability. In a highly seasonal business, layoffs are inevitable, so make them earlier rather than later. A planned layoff may not be traumatic if expected and comes with a fixed return date. It also allows for unemployment insurance eligibility.

In the” off” season, you would certainly want to reduce other expenses as well. Even a “fixed cost” item like a regional office can be closed completely, open by appointment, or open with limited days/hours of operation.

Also, try to offset the more dramatic effects of seasonal highs and lows with a selling strategy that includes bringing in some counter-balancing businesses.

Staffing Management Software

There is absolutely no substitute for great staffing management software. The best of these have grown up with ideas from staffing industry professionals so that the software features developed solve real everyday issues of staffing companies.

The very basics will cover such items as: Applicant Tracking, Job Order Tracking, Single Entry Payroll/Billing and Accounts Receivable.

But there are many more, here are just a few selected at random: Online Applications, Employee and Client portals Automated E-Verify, One click Debit Card Payroll, Onboarding and Benefits, Multi- location Database, Automated text messaging, and still more.

The hundreds of efficiencies these software solutions contribute to your profitability is tremendous.

Annual Review

An annual review of the numbers with or without your accountant present will yield some surprising strengths and weaknesses. Yes, the numbers may look good and the bottom line is hopefully healthy, but what else will be hidden in the numbers?

A good bottom line might well be the result of one large contract that you fell into while your actual sales planning and forecasting was off by 25%. Luck is great and happens often, but you cannot allow your profitability to be the result of accidental good luck. Your sales goals should be met and let the good luck just add to it!.

Is your staff payroll and commissions in correct proportion to your gross revenue? Lower that average? Good! Higher? How do you avoid the higher than average?

What is the difference between your gross income and net profit? Within target range? Can it be improved? Maintained?

If new sales were 100% of forecast but your bottom line was 20% less than forecast, something is obviously wrong. Some clients did much less business (or none) with you in the past year and you will need to find out why?

So, study the annual numbers, they can help your plan for the coming year, enlightened by the last.

Pricing

Pricing strategy and success is always a very difficult part of any business and, in that regard, the staffing company is no different.  Even when you consider the much larger proportion of payroll than most companies, it really makes little difference.

Not to oversimplify what can be a very complex business, but a staffing company is basically selling two products; employee work hours and permanent employee placements.  Each product has cost, a markup (a range of markups) and a price. The company then tries to sell enough of these products to pay its employees, a host of other expenses, and, hopefully, makes a profit. It’s the same for General Motors or Danny’s Diner

The key to any pricing strategy is, of course, to know all your costs. Most of these are evident but some are hidden or non-recurring. The hidden costs need to be included in your pricing, even if an estimate. It is “paid for” via a contingency fund that we discussed earlier. The amount that should be in the fund would be influenced by history but generally a five percent of gross would be a reasonable amount.

Once you know all your costs and have set a target for your profit margin, (usually 15-20 percent before or after tax) you look at the market to see what other prices are being charged for the same general product.

Can your cost structure and desired profit margin allow you to set a price that is competitive? If not, you will need to review your costs to see where you may, realistically, reduce them.

Review your existing contract and sales projections to determine how that factor can reasonably close the gap. Be conservative. It is no surprise that people in business are generally conservative. It’s a survival instinct!

As a rule, you should not cut your price or profit margin to make a sale. Profit is necessary! It is the most important measurement of the health and sustainability of your business. Be prepared to sell (and deliver!) quality, credibility, compliance with all state and national standards, training and quality of your staff. etc..  But protect that price, it’s your insurance of profitability and sustainability.

Client Retention

You might ask how “client retention” is a part of organizing for profit? Hopefully, as you think about that question it will become more obvious. Having an effective client retention strategy is essential for-profit planning since client losses can dramatically affect all your plans and projections for profitability and growth.

Lost income needs to be replaced and the cost of replacement paid. It’s expensive, distracting, and discouraging. It can affect morale of the whole office.

Some client losses are inevitable and cannot be prevented. Businesses go out of business. Change in ownership often comes with preexisting relationships for the services you provide. Some clients simply have no more need for your services.

But most client losses are the result of poor service, poor employee performance, overlooked problems or continued inability to fix recurrent ones.

If you are organizing for profit you need to have an ongoing client retention strategy. That strategy does not assume good work just because you have had no complaints.

You need to be in regular contact at least weekly by phone, then once a month in a face to face meeting. These meetings can be short and perhaps, should be. Be concerned, be ready to help, and be genuine.

Have some questions ready that demonstrates you are thinking about their projects and the people you have working there. Specific questions on your Temp worker’s job performance, happy with the quality of their interfacing  with regular employees and management.

Are there areas where the employee(s) could improve that you could talk to them about?

Finally, always encourage an office culture where everyone is part of the client retention (and sales) team. The people who answer the phone are critical to retention and should be trained well in that supportive role.

New Sales

No company can be profitable without bringing in new clients. As we mentioned above existing clients can be lost for several reasons even when you are delivering excellent service.

With great service and a pro-active client retention program you should be getting referrals from time to time. But you do not have to wait for them.  When visiting a client and when things are going well, ask for them, or for more general sales leads.

Again, when the time is appropriate, ask if your client might provide a short testimonial for your website and for use in your sales calls. To make it easy for them, offer to write down their comments and email them a draft testimonial for their approval.

Excellent service to existing clients virtually assures new sales. Your reputation in business circles improves and you will get calls. Good permanent hire placements will also generate referrals of other good job candidates.

But, as you know, never assume anything. The hard work of new sales goes on in constant networking, cold calling, stopping in to drop off your card/brochure, job fairs, community events and service organizations. Be well organized, professional, follow up, do your homework and enjoy making new friends who need your help in achieving their own business goals.

Manage!

Finally, as a part of your “organizing for profit”, you need to manage! Manage the office, the workflow, the implementation of specific company goals, and most of all, the staff. They are your team and key to your success and theirs. If everyone is productive and generally happy and interested in their work, things will go well. For about a month! Human nature is always a challenge. Think of yourself!

So, meet individually with staff members at least every two weeks with a general staff meeting every month. At the individual meetings bring your notes. Use the great formula of 90% positive, 10% correction or better yet, 10% “notes”. Positive reinforcement works well because we all need it and it works.

These individual meetings should be short (30 minutes), well planned with a good opportunity for your staff member’s feedback. Staff meetings should also be well planned with a set agenda and a time limit for each item. If some issue(s) is not resolved in that time period, you need to decide what to do, at least temporarily. It can always be discussed again at the next staff meeting.

If staff and management are in good and constant communication and working together on goals that everyone is on board with, profitability is assured. If someone is not “on board” that will become evident in your individual meetings. You will not really need to fire anyone. It has been my experience that the person who is not “on board” will fire themselves.