STARTUP STAFFING FIRM FAQS
YOU HAVE SOME QUESTIONS. WE HAVE SOME ANSWERS.
Every business starts with a dream, and the bravery to take your talent and strike out on your own. There are probably many questions running through your mind, and not a lot of time to look up answers, and that’s where we come in. We’ve helped many startups turn in to successes, and below are some of the questions we get most often.
DO I HAVE WHAT IT TAKES TO START A SUCCESSFUL STAFFING FIRM?
One of the greatest indicators of success is having relevant experience (sales, recruiting or operations) in the staffing industry. If you don’t have staffing experience, and can’t hire an experienced staffing veteran, you carry a much higher risk of not being successful. If you have experience, that’s great! Our tools and resources will help you along the way. Get started with our helpful templates for a SWOT Analysis or Business Plan.
IF I’M ELIGIBLE, SHOULD I GET DIVERSITY CERTIFICATION?
Yes, you can apply for certification for WBE, MBE, VOSB, or SDVOB as soon as you have an EIN. Part of our strategic services include assistance in pursuing and promoting your diversity certification.
I WANT TO START A STAFFING FIRM, WHAT DO I NEED TO DO TO GET STARTED?
One of the first steps is forming a new entity (typically a corporation) and registering your business with your secretary of state. We’ve compiled a list of links to each secretary of state where you can find the necessary information and forms (a registration fee is required by each state). Once you setup your entity, and register with your state, you will receive a state tax identification number. Then, you can apply for an EIN online through the IRS for federal taxes.
WHAT PRODUCTS DOES ADVANCE OFFER FOR A STARTUP?
Advance offers articles, industry news, and business planning resources for staffing startups, as well as dedicated resources in the Startup section of our website. Our core services, payroll funding, back office support and strategic services, are designed to help staffing firms of all sizes, from startups to large regional staffing firms, achieve healthy long-term growth. And when a startup utilizes our core services we also offer ongoing support and consultation with in-house experts who have decades of experience in the staffing industry.
WHAT ARE THINGS THAT COULD HINDER MY SUCCESS AS A STARTUP?
We’ve worked with hundreds of staffing firms and have seen what contributes to both success and failure. To that end, we wrote a blog post about the pitfalls to avoid when starting your staffing firm. And don’t let these warnings scare you. Like a scout, “always be prepared”, and you’ll set yourself up for success.
CAN I START A STAFFING FIRM IF I HAVE A NON-COMPETE?
Yes, but it’s worth doing your homework and considering these factors in regards to your non-compete. It’s also very important to seek legal counsel and respect any agreements you’ve made, however a non-compete does not mean you have to give up on your entrepreneurial dreams of starting a staffing firm.
WHAT SORT OF INVESTMENT IS INVOLVED IN STARTING A STAFFING AGENCY?
The good news is that staffing is not a high capital expenditure start-up business. However, there are some funds you will need to become operational: Accounting/Legal fees, Insurance Premiums, Office Space, Computers/Phones/Internet/Software, In-house Salaries, Marketing (Logo, Website, Print/Electronic Collateral) and Recruiting Tools (Job postings, Database access). Not everyone will have all of these expenses, but you should be able to account for and assign a number to each (even if it is zero). That being said, $20,000 is a low end and $50,000 is a common level of investment.
In addition to startup capital, you will also need to think about a source for working capital. Working capital is the cash flow you need to pay your temps while you’re waiting to get paid from your clients. Payroll funding is the most flexible source of capital for staffing firms and includes many benefits in addition to cash flow.
WHY SHOULD I USE A PAYROLL FUNDING AGENCY INSTEAD OF A BANK LINE OF CREDIT?
Many startup staffing firms will have difficulty getting a line of credit with a bank. Even if an LOC is secured, there are often strict credit limits. This is particularly challenging for startup staffing firms because your need for working capital increases as you grow. As a startup, you’ll be adding new clients and placing new temps on a regular basis, and if you’re not able to get the cash you need from your line of credit to pay your employees, you’ll have to turn down business and possibly lose a client if you cannot meet their needs.
However, with the flexibility of payroll funding, you have the cash flow you need to pay your temps and you also have the capacity to grow. A payroll funding company assigns credit value based on your customers credit worthiness and is immediately raised as you bring new creditworthy business in. A funding company encourages growth and is immediately responsive to your opportunity.
WHAT ARE SOME OF THE MOST IMPORTANT TAX AND EMPLOYMENT FORMS I NEED TO FAMILIARIZE MYSELF WITH?
Employer Identification Number (EIN) – This is the number assigned to your business for the purpose of federal tax administration. You can apply for an EIN online through the IRS.
State Tax ID – This is the ID you need to pay taxes for state income taxes or sales tax. This is different than your EIN. Register your business with your state’s revenue department or tax authority, you can usually do this online. – This is the ID you need to pay taxes for state income taxes or sales tax. This is different than your EIN. Register your business with your state’s revenue department or tax authority, you can usually do this online.
Employer’s Quarterly Federal Tax Return (Form 941) – Employers who withhold income taxes, social security tax, or Medicare tax from employee’s paychecks (or who must pay the employer’s portion of social security or Medicare tax), use Form 941 to report those taxes.
Employment Eligibility Verification Form (I-9) – This is a US Citizenship and Immigration Services form. It’s used to verify an employee’s identity and to establish that the worker is eligible to accept employment in the US.
Form W-4 – This is an Internal Revenue Service (IRS) form that your employee completes for withholding the proper amount of federal income tax from their paycheck. This form is required for each employee upon being hired.
Form W-2 – The IRS requires employers to report wage and salary information for employees on this form. It also reports the amount of federal, state and other taxes withheld from an employee’s paycheck.
Form 1099-MISC – Another IRS tax document used to report miscellaneous payments made to non-employee individuals during the calendar year. (i.e. independent contractor rather than employee).
You’ll also need to file tax returns based on your related state and based on your type of incorporation. We recommend you work with a local CPA or accounting service for filing your business taxes.
For startup staffing firms, we often recommend back office support services, which takes care of all your payroll processing and payroll tax administration and enables you to focus on selling and recruiting.
SHOULD I USE A PAYROLL SERVICE OR A PEO?
As a startup, your time is best spent on growing your business through sales and recruiting. It often makes sense to rely on outside resources for other parts of your business. For example, our Full Service program includes payroll funding and back office support which takes invoicing, payroll processing and tax administration off your plate. However, a PEO makes sense if you’re placing temps in an blue or grey collar industry where workers compensation costs tend to be higher. A PEO serves as the employer of record and can help secure lower rates for worker’s comp and other insurances.