There were about 25,000 staffing and recruiting agencies in the US before the pandemic, and total sales grew to $168 billion in 2021, according to ASA research. Despite the pandemic and the disruption it cased in the labor market, overall the outlook for the staffing industry is strong,
Some three million temporary and contractors work for staffing agencies (aka temporary staffing agencies, or temp agencies) each month, according to the American Staffing Association. They fill roles in all types of businesses, including industrial, clerical and administrative, professional and managerial, engineering, information technology and healthcare.
Here’s what you need to know if you want to become a business owner in the staffing industry.
Things to Consider Before Starting Up a Staffing Agency
Before you dive into starting a staffing agency, you should know the market, how you can add value, and how agencies typically work. You want to understand where the opportunities lie, what your target audience wants, what your target audience isn’t getting, and how you can add value.
You’ll also need to understand the competition, and the cost of launching and growing a successful staffing agency. The good news is that all of this research can be used to help create your business plan, so not only do you benefit from the knowledge you gather at this stage, you can incorporate it into your business plan.
Your local Small Business Development Center (SBDC) and SCORE chapter can help you with part of the startup process. They can connect you to research tools like US Census data to help you understand the market for your business, and create a business plan.
How to Start a Staffing Agency
It’s not unusual for an entrepreneur with experience in the staffing or recruiting industry to decide they want to create their own staffing agency or a recruitment firm. While the are many steps to consider, here are some of the first steps you may want to take when starting a new staffing agency:
- Get professional training. If you haven’t done so already, you may want to explore professional credentials. For example, you can become a Certified Staffing Professional, Certified Search Consult, Technical Services Certified or become a Certified Healthcare Staffing Professional through the American Staffing Association. These credentials can help your business stand out from the competition and give you added confidence as you establish your staffing company. They also offer tool kits and guides for staffing agency owners.
- Create a business plan. The first step to starting any business is to develop a business plan. This step is crucial because it helps you develop a business model, including pricing, and will help you determine your staffing agency startup costs. A good business plan will include everything from an overview of the industry and your company’s competitive approach, marketing, as well as a financial plan.
- Form a business entity. You’ll want to set up an LLC or Corporation. A business entity helps reduce your personal liability and may provide tax benefits. It also looks more professional to clients.
- Open a bank account for your business. Once your business is registered, it is essential that you open a business bank account. This will allow you to effectively track income and expenses, and will prove helpful if you need to get a small business loan. It is also a good idea to get a business credit card for business expenses.
- Get business licenses. Your business may need a professional, occupational, and/or business license, depending on state and local requirements. Make sure you secure the licenses you need to operate legally.
- Get legal help. Before you dive into the business, you’ll want to make sure your legal contracts with clients and contract workers are solid. You may be able to use legal templates, and get advice from an attorney on an as needed basis.
- Set up a payroll system. Whether the workers you place will be employees or contractors, you’ll want to make sure you have a reliable payroll processing system in place so that workers get paid on time and that you comply with payroll tax and worker’s compensation requirements.
- Get business insurance. Your business may need general liability insurance as well insurance specific to your industry. Skimping on insurance can be costly.
- Get started: Once all the legalities and paperwork are taken care of, you finally get to start on the exciting part. You can begin to hire employees or contractors, create your website and marketing campaigns, and start finding and taking on clients.
Expenses For a Staffing Agency?
Your business plan will provide deeper insights into the startup and ongoing expenses for your staffing business. Here are common expenses you’ll want to budget for:
- Legal contracts/expenses
- Business insurance
- Advertising/marketing/social media marketing
- Office space, if needed
- Overhead costs: supplies, equipment, etc.
- Labor (contractors and employees)
Remember this is just a quick overview of potential expenses, your actual expenses may look different depending on your specific staffing agency business needs.
Keep in mind that most of these expenses are recurring and will likely continue to rise over the life of your business. As it grows, your insurance costs, payroll, and other overhead costs will go up.
Staffing agencies are human capital intensive businesses, and as such tend to have higher recurring and upfront costs than other businesses.
So how much exactly will it cost you to start a staffing agency? Estimates vary, but the consensus seems to be that it will cost at least $20,000-$25,000 on average to get started. It’s unlikely you’ll be able to start a staffing agency with no money; at a minimum you’ll incur upfront costs for forming the business, getting licenses, and making sure you have insurance and legal contracts in place.
How to Fund Your Startup Staffing Agency
Funding your startup staffing agency isn’t very different from funding options for most startups. You can fund it yourself from savings or with money from friends and family, get a small business loan, use lines of credit, or— more likely— a mix of these different options.
(If you’re considering trying to get a small business grant, understand that it is hard to get a grant to start a new business.)
The option you choose will depend on your resources and qualifications.
Financing Options for Staffing Agencies
Here are the most popular types of financing used by staffing agencies:
This type of loan offers a fixed amount of money you’ll pay off over a specific period of time, anywhere from 2—10 years or more. Bank loans of this type will require excellent credit, while online lenders may be somewhat more flexible.
Line of Credit
A line of credit offers access to a specific amount of funding. Borrow as much as you need, then pay it back and borrow again. These are very popular for working capital funding.
Several types of SBA loans, including startup loans, may be available to business owners with good credit.
As your business brings on clients, invoice factoring may help you get paid faster. The factoring company advances you funds based on invoices due from your clients, and gets a fee for doing so. The approval process for this type of financing is usually very fast.
This article was originally written on October 31, 2023.