FACTORING BLOG

5 Strategies to Recession Proof Your Staffing Business in 2023

In recent years, businesses have faced significant challenges like the pandemic, staffing shortages, logistics issues, and rising interest rates. As a staffing owner, staying afloat has been your top Recession proof your staffing agency priority. Now, it’s crucial to take proactive steps to recession-proof your agency. This article offers five valuable strategies to help you focus on running your staffing business effectively.

According to a recent Wall Street Journal survey, economists are revising their recession risk expectations, and the economy has positive signs. This shift in outlook is primarily due to easing inflation, a strong labor market, and overall economic resilience. The likelihood of a recession within the next 12 months has decreased from 61% to 54% compared to the previous surveys.

However, it’s still important to exercise caution and be prepared for uncertainties in the staffing business landscape. The surveyed economists expect the U.S. Federal Reserve’s preferred inflation measure to decrease to 3.7% by the fourth quarter of this year, although it still exceeds the Fed’s target of 2%. On average, economists predict a monthly loss of 10,551 jobs in the first quarter of 2024, which is relatively unchanged from their earlier forecast.

Take proactive measures to safeguard your business against potential economic downturns by implementing the following 5 strategies:

  1. Diversify Your Customer Base: Reduce your dependence on a single client or a small number of clients by diversifying your customer base. Aim for no single client to account for more than a certain percentage (e.g., 10-20%) of your total revenue. Target customers in different industries and geographic locations to spread the risk.
    • Why diversify? Diversification is essential as it protects your business from losing a significant client or an industry downturn. Just as importantly, it protects your business from a slow-paying or non-paying client.
    • How to diversify? Use reporting available from your staffing software to analyze your existing portfolio and then create a diversification plan. A plan could include adding new solutions such as a direct hire program or MSP services. Set aside a specific time each week for new business development, and having dedicated time on your calendar will hold you accountable. Additionally, seek professional advice. Consider consulting with a staffing industry expert or business advisor for diversification and growth strategies.
  2. Develop and Cross-Train your Team: Talent management platform Clear Company found that 94% of employees would stay longer if their company invested in professional development. Empower your employees with the necessary skills and knowledge to adapt to changing circumstances. Offer training programs that enhance their capabilities and cross-train them in different business areas. In times of a recession, a highly skilled and adaptable workforce will be more capable of effectively navigating and overcoming challenges.
    • Benefits to Team Development and Cross-Training include increased efficiency, better teamwork and collaboration, and business agility. Remember, it increases motivation and is what employees are asking for!
    • Top Requested Training Topics for 2023, according to Hour One, include conflict resolution, teamwork, time management, stress management, emotional intelligence, negotiation training, and leadership training.
  3. Improve your Cash Flow and Grow the Staffing Agency: Look at these four recommended tips for improving your cash flow!
    1. Re-evaluate your contract payment terms:  Asking yourself the right questions about your payment terms is essential. Are you doing a standard payment term with everyone? Are those payment terms working for you? What if your customer pays late? When you ask yourself questions like these, you can narrow down if your payment terms are helping or hurting your cash flow and what adjustments need to be made.
    2. Work your aging: Designating someone responsible for your aging will eliminate the chances of it being passed over as a duty. Consistently work on your aging by including it as a task on your calendar. Treat your clients’ AP department as you treat your HR contact or hiring manager. Build a relationship, ask the right question about their processes and what they need to pay the invoices on time.
    3. Adjust your Pricing Model: One option is a standard rate increase program for your clients. Another is to use labor market data analytics to support your need for higher bill rates with difficult-to-fill positions. Using a product like Talent Neuron or Emsi gives data around difficulty to fill and will support your ask for a higher bill rate.
    4. Focus on Filling the “Right” Orders: An order isn’t an order until it’s filled, billed, and collected! With that in mind, not only is it important to accept good, fillable orders, but you need to make sure that your client can pay. Having a process to check credit and establish credit limits is just as important as ensuring the job is fillable.
  4. Know Your Options for Cash in an Uncertain Economy:
    There are a variety of cash flow solutions for staffing agencies. Self-funding is self-explanatory. This is the least costly of all cash flow solutions, but it is a high-stress solution. No one likes to spend their own money. Another option is a bank line of credit or a loan. There are some benefits, such as funds on-demand, a safety blanket approach, and fees only occur if they are drawn upon. However, setup time, time in business, ratios, & oversight are all downsides that come hand-in-hand with a bank line of credit or loan. Merchant cash advance loans are quick and easy to obtain, but they implement very high fees while being an unsustainable option. Payroll funding, also known as receivables financing, is fast with flexible terms. Typically, you can choose the clients you wish to fund and look for a funding partner who offers a month-to-month contract. The only con to payroll funding is that there is often a volume minimum.
  5. Understand the Benefits of Receivables Financing / Payroll Funding: One of the biggest challenges a staffing agency faces is meeting weekly payroll when it takes 15 days, 30 days, or even 60 days for customer payments. Payroll funding, also known as receivables financing, provides instant cash flow to bridge the gap between invoicing and receiving payment.  The process works by selling your open receivables to a payroll funding company in exchange for an immediate cash advance.  Receivables financing gives owners financial freedom to not only cover payroll but to invest in marketing and technology, pursue new client contracts, and grow the business!

Remember that recession-proofing is an ongoing process that requires continuous monitoring, adaptation, and resilience. By implementing these strategies, you can increase the stability and sustainability of your business, even in the face of economic challenges.

On December 15th, VP of Business Development, Sheri Tischer, combined her 15 years of staffing experience with VP of Business Development Dan Eichstaedt’s 17 years of sales and finance experience to discuss “How to Recession Proof your Staffing Agency in 2023. Watch the pre-recorded webinar below.

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