Sunday, December 14, 2008

Funding needs high -- Staffing

Hi gang,

I recommend cold calling lightly, but no other industry touches so many workers than one: Staffing.

I highly recommend getting introduced to staffing firms through your network.  You could use a simple email like this to ask your address book"

I am looking for referrals into staffing firms.  They are really feeling the credit crunch and are faced with not taking on more temp deals, or even laying off. We can fund them so they can grow and keep employing temps.

Financially, here's what is causing this as far as I can see.  Banks aren't able to sell their commercial loans off on secondary markets to keep their loan to deposits ratio.  In fact, regulators are asking banks to sell off good loans to get their ratios in balance.

So, good loans have assets against them.  Commercial loans to staffing firms have very little they can have as assets pledged against them.  Thus, the earliest loans to be capped or even terminated are such loans.

So, if a new staffing firm is looking for a commercial loan from a bank it is nearly impossible to get.  If an established staffing firm gets a call from the bank that their line has been reduced, capped or canceled, they have to figure something out very quickly.

So, if you can get introduced to the decision makers at small medium and even large firms, it would be a very helpful conversation.

If we can help staffing firms find temp jobs for those getting laid off, then we can do something to help the country through this crisis.

I approach each funding conversation with this kind of passion because it really is important for our economy to have as few layoffs as possible, and have those laid off re-employed as soon as possible.

We were talking with the owner of a staffing firm and his impression is that he is seeing much fewer permanent placements and a large increase in requests for contract or temporary placements.  The economics for this are simple.  The firms need bodies, but they cannot pledge year end budgets to large salaries.  When they contract to hire someone they actually get invoiced for labor done, then wait 30-60-90 days before they pay the temp firm.  This staffing firm is essentially funding their clients who are taking advantage of the time value of money.  Unless these staffing firms have lots of cash reserves, there is an upper limit to the number of contracts they can handle.

This firm actually had a line for $100K and had maxed that out, so they couldn't tap that for more cash to payroll their clients.  In this case, the solution is to get the silent partner to pay off that loan to free up the firm's accounts receivable for factoring so that the managing partner could accelerate growth and thus accelerate pay-down of the silent partner's loan to pay off the $100k.  This way, the managing partner gets the albatross of a liability off their neck and empowers the firm to grow as fast as they can take on contract work.  They then factor the a/r and make their 30 day nut, and they don't have to worry about how long their new contract clients take to pay.  This way they can turn their dollar quicker and capture the market.

For firms that are growing this is a perfect solution.  For firms that wouldn't grow one iota in a year, it may not be.

So, ask your network who they know in staffing they can introduce you to.  Then, let's all roll up our sleeves and cold-call on some if we have to in order to make a difference for our economy.

Eric Standlee

No comments: