What should I check in a staffing agency’s bill and pay rates before buying?

A staffing agency earns the gap between what it bills a client and what it pays the worker, and that gap has to cover the agency’s own costs of employing people. A buyer who looks only at total revenue and total margin can miss that some clients carry the business while others barely cover themselves. The work is done client by client.

Compare rate sheets with invoices

Ask for the agreed rate sheet for each client and a sample of recent invoices. Do they match? Look for discounts, rebates, rounding practices and unbilled hours that never made it to an invoice. Then compare to payroll records for the same workers and periods. Differences deserve an explanation in writing, from the seller or the seller’s accountant.

Find when rates last moved

Ask for the date each bill rate was last raised, and each pay rate. If worker pay has gone up while bill rates stayed put, the gap has been shrinking. Ask what the seller expects to do about it, and whether the clients have been told. Then read what each contract says about changing rates and how much notice is needed.

Know what the bill rate covers

Employing workers carries costs beyond wages, such as statutory payroll costs, insurance and the cost of recruiting and paying on time. Ask the seller to show which of these the agency absorbs and which the client reimburses. Your accountant can build the picture and tell you what belongs in the numbers.

Questions to put to the seller

• Which clients have negotiated their own terms, and which accepted standard ones?
• Are any workers paid above the rate sheet to keep them?
• Has any client asked for a lower rate, or threatened to move?
• Do any contracts tie rates to a client’s own pricing?