Is it better to buy an existing staffing franchise or start new?

As usual, there are advantages and disadvantages to either scenario, and it depends a lot on your budget. Whether you are highly experienced in the industry, or are new to staffing, a franchise can be a great way to succeed in this booming industry. The industry has been growing steadily for years and the future looks bright, so lots of people are looking for entry points into the business. 

Whether resale or new, there are two substantial benefits to being in a franchised staffing business. The first is that you have an efficient operating system, including a detailed sales and marketing strategy. Also, besides knowing how to recruit and interview candidates, it is critical to have the ability to assess them effectively, so having a deep inventory of the appropriate skill evaluations is vital. The second advantage is that you don’t need an enormous credit line or a factoring agency to manage your cash float. Most staffing companies pay their employees weekly, but often do not collect on their invoices until the end of the month. A month of payroll, can be a lot of money, so a franchise partner who provides this financial bridge for you is a significant advantage.

If you have a large enough budget you can buy a healthy staffing franchise, but you can also start one for about 150k on average. That means the franchise fee is typically about 40k and you need access to up to another 110k for working capital. That is a very low price point to be able to start one of the most profitable franchise models available today. To put that into perspective, the average unit in the top staffing franchise does twice the average unit volume of a McDonald’s franchise, and at fraction of the investment.

It can be attractive to step into an existing operation, but it isn’t always the best entry point. Often businesses on the resale market will have issues, and the revenue that they are producing, could be closely tied to the seller, leaving those accounts vulnerable. Additionally, most franchise investors are shopping in the 100k to 300k investment range which doesn’t allow you to buy a very good staffing resale. So why spend more to buy an underperforming unit? 

Sometimes you can find a resale unit below the startup costs. This can be a great deal if there are some clients and employees in place, but often it is more cost effective to start a new location. The demand for temporary workers is very robust and the companies that are the biggest users, utilize many vendors just to have enough. This makes it simple to get in front of users, especially when you are the new kid in town. The same is true for recruitment, the job seekers are also looking to see what your agency has to offer. A new supplier in the market raises curiosity and it is best when you control your local brand image from the start. National branding means little to staffing consumers, but you are very much building a local brand that matters. 

If you are interested in owning a staffing agency and you can find a resale that fits your budget, great. However, if you are spending between 150k and 300k, you should really consider starting a new office. It can be quick to reach breakeven in the staffing business, so you can be penetrating the market in no time, without breaking the bank. 

Have a question about business opportunities? Send it to dbrunell@dearbornwest.com. Dan Brunell is President of Dearborn West, LLC, an international business opportunity brokerage headquartered in Temecula, CA. He can be reached at 951.587.6929 or on the web at www.dearbornwest.com.

Comment

Dan Brunell

Dan Brunell is the CEO of Dearborn West, LLC, an independent boutique consulting firm that specializes in entrepreneurial talent acquisition and training. Dan has fostered recruiting relationships with over 300 franchise systems throughout North America, created and delivered customized training and coaching programs for global consulting network, and established the best practices and ethical guidelines for this emerging industry space.