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| No. 10 | 
Dec 06, 2005, 10:32 AM
 Re: Starting a Staffing Agency Originally Posted by HarryHK I think you are right about the local staffing thing. However, I don't think it matters what the APR might be. It is just a fixed five percent cost. Which in the staffing business where you know exactly what your cost of doing business is, is the best way to do it. Not cheap, and in many other sort of business models that are unprofitable for the first couple of years, factoring could easily help push the business into bankruptcy.
The APR does matter, especially in terms of your next comment on how you feel a line of credit seems to be just as expensive. From the idea of a fixed 5% on every billed shift/manhour, you are right, it is budgetable. However, if you are attempting to offer benefits and a high wage competetive with other agencies, you are going to be cramped. Since you later talk about being an IC and subcontracting business out this reveals another very important thing. Factoring is still bad for someone in your position (in my opinion) but it's really terrible for someone seeking to EMPLOY people. Lines of credit seem to be just as expensive, perhaps not APR wise, but not a clean fixed percentage of the cost of doing business either. And I suspect you have to have pretty darn good financials to get one as well, or put a lien on your property. A contract with a guaranteed return in a staffing agency should be easy to factor.
Transactional budgeting can get you into trouble. It neglects the expenses required to support operations (overhead costs and the like) and the increasing burden that interest expenses have on a company when factoring. Additionally, and probably most importantly, when you borrow from your line of credit you pay it back as soon as you get the money in. In the previous example we discussed about APR on factoring let's see.... You are bleeding out 5% of your revenue on a constant basis using factoring, 5% no matter when someone pays... unless they run past 90 days or so when you are forced to buy back the invoice and are potentially financially ruined. With a line you pay generally 6-10% APR. Since you are borrowing money on an invoice for 30 days, how much does it then cost you in comparison? Since I have effectively started a staffing agency with myself as sole employee, I know it can be done with virtually no money other than living expenses before invoices are paid. And I've subcontracted travelers who were willing to wait for their money as well. But a home health agency is scary stuff. I'd want lots of capital and some back office expertise as well.
What you have done is not a travel staffing or staffing agency. You have become an independent contractor and have allowed other IC's to subcontract through your existing contracts/service agreements. That is not the same thing as a travel staffing or staffing agency who offers benefits and pays payroll taxes. What the OP appears to want to do is have employees working for her in a local Per diem staffing agency. She would have to pay expenses like work comp insurance, unemployment insurance, liability insurance (both professional and general), payroll taxes, etc. etc. (in other words, a bunch of stuff that costs a lot of money).
This unfortunately further removes factoring as a viable option for her business. While your margins are fairly high due to having only a couple of costs (by treating your people as IC's), a real employer has significant additional costs and can't afford to give away 5% off the top of their A/R each week.
 | | Advertisement Sponsored Links | | | | No. 11 |
Dec 07, 2005, 12:48 AM
Re: Starting a Staffing Agency
Hello again,
I've been away for a while. Thanks for all of your input. Eye openers I might add. Just to clarify-I am starting a local (hospital) staffing agency, no home healthcare, no travel nursing. I was looking into PRN funding company but I wasn't really sure how the factoring program worked so far as if the accounts became way past due. I know that they take 1% from the total balance and give up to 80% cash advances on your total balance with the hospital. I didn't know that they could make you buy your invoices back if they deem it to be too difficult to collect the money. I guess I understand why though.
| | No. 12 |
Dec 09, 2005, 11:41 AM
Re: Starting a Staffing Agency Originally Posted by Kindhearted Hello again,
I've been away for a while. Thanks for all of your input. Eye openers I might add. Just to clarify-I am starting a local (hospital) staffing agency, no home healthcare, no travel nursing. I was looking into PRN funding company but I wasn't really sure how the factoring program worked so far as if the accounts became way past due. I know that they take 1% from the total balance and give up to 80% cash advances on your total balance with the hospital. I didn't know that they could make you buy your invoices back if they deem it to be too difficult to collect the money. I guess I understand why though.
Kindredhearted,
You'll want to look very closely at their contract. Generally, the companies that take a very small discount % rack up interest on your DSO's. They also often have a mandatory buy back agreement and likely steep penalties for late paying customers.
I would HIGHLY encourage you to look into a line of credit, probably backed by the SBA. You only use what you need of the line and typically you are looking at about 1.5% over prime. You'll need pretty good credit (700+) and at least SOME assets. You'll also need a sound business plan and solid budgets and forecasts.
If you do not have some previous experience on the management side of the Per Diem staffing agency industry (or something very closely related), you will likely have a problem getting loans, liability insurance and work comp insurance. These are all things you must have.
Without a doubt Harry hit it on the head in regard to the high amount of capital (or access to credit) that is required to operate, though he is referring to a different type of entity than you are (including using IC's rather than employees). In your case, you would need significantly more money than he does (actual startup capital). You will have downpayments for a lot of things, especially insurance policies. You will need to begin paying service providers (lawyers, accountants, etc.) and/or software vendors (accounting system, payroll system, staffing/time management software) prior to even billing your first customer (to get setup to service clients, bill them and pay your employees).
You could probably obtain an SBA express loan (pending your financial situation and credit history) to provide the startup capital needed. Then you could get a 7a SBA backed line of credit for ongoing operating expenses. However, you'll want to make sure you have the ability and desire to run this thing. From experience (though a different industry), running a business is a 24/7 job, especially in the beginning (which is often a couple of years or more). You will have to sacrifice family time, leisure time and often even sleep. You'll have to know the industry inside and out. Don't try to compete with the big boys that have the financial and talent resources you lack by winging it. It just won't work. Be prepared for things like price games (which you likely won't be in the position to play) and temporary pay hikes from your competitors (again, you won't be able to play) in their efforts to quickly put you out of business. You instantly become enemy number 1 of the other agencies in your service area. They will be gunning for you from day one. No one likes the threat of someone trying to take a piece of "their" pie.
You're often best having a partner. Preferably one that can bring some money and money management experience (accounting) to the table. It can get quite lonely being the only owner as it's not appropriate to vent to your employees about "owner stuff" or ask advice or input from them about "owner problems".
| | No. 13 |
Jun 27, 2007, 04:13 AM
Re: Starting a Staffing Agency
Hallo,
I would like to know what kind of licences or permits one need to operate a staffing agency.Which State/Federal authorities does one needs to contact in order to start a staffing agency? Will really appreciate anybody's advice.Thanks
| | No. 14 |
Jun 28, 2007, 03:16 PM
Re: Starting a Staffing Agency Originally Posted by Samwana  Hallo,
I would like to know what kind of licences or permits one need to operate a staffing agency.Which State/Federal authorities does one needs to contact in order to start a staffing agency? Will really appreciate anybody's advice.Thanks
Hi Samwana,
To get started, you will need to incorporate and also to check with your state to see if a staffing agency license is needed. (i.e. one is required in NY and FL). You will also need General, Professional, and Worker's Comp Insurance.
To find the link for your state go here -> http://www.nursingcorp.com/StateLinks.htm
Joe
| | No. 15 |
Sep 22, 2007, 11:17 PM
Re: Starting a Staffing Agency
I'm going to have to disagree with both your points. There is no requirement to incorporate (and it is actually easier to staff nationwide without incorporating), and having been a staffing agency for over four years, I have never heard of a staffing license. Perhaps for staffing non licensed personnel? I only know of two states with specific requirements for nurse staffing. WA requires registering your agency with the BON (although I have no idea if agencies actually do or not or how they might enforce it). RI requires a physical presence in the state.
Other than that, nothing I know of!
| | No. 16 |
Sep 26, 2007, 04:01 AM
Re: Starting a Staffing Agency Originally Posted by HarryHK I'm going to have to disagree with both your points. There is no requirement to incorporate (and it is actually easier to staff nationwide without incorporating), and having been a staffing agency for over four years, I have never heard of a staffing license. Perhaps for staffing non licensed personnel? I only know of two states with specific requirements for nurse staffing. WA requires registering your agency with the BON (although I have no idea if agencies actually do or not or how they might enforce it). RI requires a physical presence in the state.
Other than that, nothing I know of!
To add to your list of restricted states, off the top of my head:
- Kentucky has a licensing requirement specific to nurse staffing.
- Illinois requires a physical office in the state.
- Florida has a medical staffing license requirement of some sort.
To address incorporating:
If you are going to staff ANYONE but yourself, it is incredibly foolish not to form some sort of limited liability entity. Should that be a corp, an LLC or whatever it SHOULD be something. Without the limited liability of an official entity you expose ALL of your personal assets (your home, your cars, your personal bank account, everything). It absolutely will not be "easier to staff nationwide without incorporating". Hospitals have large legal departments that will disagree with your statement. The issue at hand is simple. If you are not a true business entity with appropriate general and professional liability insurance and work comp insurance, you'll get nowhere... unless you get lucky by complete accident, in which case you're probably providing services to a hospital that has terrible risk management and in turn exposes YOU to increased risk.
| | No. 17 |
Sep 30, 2007, 09:41 PM
Re: Starting a Staffing Agency Originally Posted by eddy It absolutely will not be "easier to staff nationwide without incorporating". Hospitals have large legal departments that will disagree with your statement. The issue at hand is simple. If you are not a true business entity with appropriate general and professional liability insurance and work comp insurance, you'll get nowhere... unless you get lucky by complete accident, in which case you're probably providing services to a hospital that has terrible risk management and in turn exposes YOU to increased risk.
While I don't disagree with you about the benefits of incorporating, an large portion of small businesses do not (it is a rare one with over 50 employees though). A sole proprietorship is a "true" business entity and can get appropriate insurance. I did it, and worked for a number of hospitals without a problem. Theoretically, they prefer to work with corporations if they know the real risks, but I can tell you from personal experience not one hospital has asked and I do not say Inc. on any of my paperwork before or after I incorporated. Nor as far as I know has any of them done any sort of due diligence on me. Hospitals have in the range of several hundred vendors (often 20 of them just staffing agencies). I don't know how they could do due diligence on each one.
It is easier to do business across state lines as a sole proprietor. That is a fact! No need to register your corporation in every state you do business in. That can get not only expensive but incredibly cumbersome for a small business. Granted that many small corporations fly under the radar (as do I) but that is not technically legal. There is certainly no reduction in work load for a corporation so I'm not sure where you are coming with this claim. I have to do 8 tax returns a year now!
| | No. 18 |
Nov 14, 2007, 03:23 PM
Re: Starting a Staffing Agency Originally Posted by HarryHK I think you are right about the local staffing thing. However, I don't think it matters what the APR might be. It is just a fixed five percent cost. Which in the staffing business where you know exactly what your cost of doing business is, is the best way to do it. Not cheap, and in many other sort of business models that are unprofitable for the first couple of years, factoring could easily help push the business into bankruptcy.
Lines of credit seem to be just as expensive, perhaps not APR wise, but not a clean fixed percentage of the cost of doing business either. And I suspect you have to have pretty darn good financials to get one as well, or put a lien on your property. A contract with a guaranteed return in a staffing agency should be easy to factor.
Since I have effectively started a staffing agency with myself as sole employee, I know it can be done with virtually no money other than living expenses before invoices are paid. And I've subcontracted travelers who were willing to wait for their money as well. But a home health agency is scary stuff. I'd want lots of capital and some back office expertise as well.
harryHK, I really liked your posts. I have been preparing to open my own nursing agency and start myself as a sole employee. I have managed to save $50,000. Is this enough to pay for all the fees to start up anf pay my own salary?
ceresk
| | No. 19 |
Nov 14, 2007, 03:39 PM
Re: Starting a Staffing Agency
Oh yes! Well under a $1,000 is all you need for insurance and possible incorporation costs (optional). Maybe some accounting software as well. And you have more than enough cushion to pay for your living expenses for a couple of months.
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