FACTORING BLOG

Tackling the Staffing Industry: A Guidebook for CFOs

The last five years have left CFOs with no shortage of problems to solve and challenges to overcome. From the uncertainty of the COVID-19 pandemic to trying to conquer rising inflation to ever-rising interest rates, CFOs across business sectors have grown accustomed to juggling multiple fire drills at once. Compounding these challenges for CFOs is the fact that as the world continues to try to emerge from this choppy economic period, not only are CFOs tasked with navigating immediate issues, but they are also simultaneously charged with revamping financial operations to better insulate businesses against similar disruptions in the future. And arguably, nowhere is this creating more headaches than in the often-overlooked staffing sector.

Whether it is unpredictable cash flows or high overhead costs, the staffing industry is a notoriously challenging business vertical for CFOs and accounting teams and presents a bevy of unique financial challenges. However, this doesn’t mean that finding success is impossible; it simply requires a comprehensive strategy whereby financial visibility, accountability, and efficiency are prioritized.

With that in mind, below are some of the best practices CFOs need to keep in mind as they look to tackle the long-standing financial hurdles presented by the staffing industry.

  • DSO – managing days sales outstanding is critical to making cash flow decisions.  Industry standards vary between 45 and 50 days, depending on your specific sector – with some industries like healthcare being as high as 75-90 days.
  • EBITDA – tracking your EBITDA is another measurement of cash flow that can also be benchmarked to your industry-specific sector.
  • Debt Service Coverage Ratio (DSCR) – employing your own DSCR will enable you to monitor how much of your cash flow is being absorbed by your debt.  A good threshold here is achieving a DSCR of 1.2 to 1.
  • Monitoring of your working capital is also critical as this will tie neatly into other cash flow and debt indicators and provide visibility on upcoming needs.

Written by Nick Florio. Originally published by CPA Practice Advisor.

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