Staffing agency due diligence

Diligence on a staffing agency is less about hunting for one hidden document and more about testing whether the business can keep meeting payroll after ownership changes hands. Because wages go out on a fixed schedule regardless of collections, the questions that matter most are about funding capacity, unfunded liabilities and compliance history rather than the headline revenue number. A buyer who works through these systematically finds out before closing whether the agency they are buying is stable or quietly running on borrowed time, rather than discovering it the first time a large client pays late after the deal has already closed.

Verify the payroll-funding facility directly with the lender

Ask for the actual factoring or credit agreement, not a summary of it, and confirm directly with the lender how the facility has performed — whether advances have ever been reduced or suspended, whether the facility is personally guaranteed by the seller, and whether it is assignable to a new owner at all. A facility that only exists because a lender trusted the seller personally is not an asset that transfers with the sale; it is a financing arrangement the buyer has to rebuild, and that takes time the deal timeline needs to account for. Ask, too, how the borrowing base is actually calculated against outstanding invoices, since a lender that excludes slow-paying or disputed accounts from that calculation is telling you something about the client base that the seller’s own summary will not.

Confirm workers’ compensation standing in every applicable province

A staffing agency operating across provincial lines answers to a different workers’ compensation board in each one — the Workplace Safety and Insurance Board in Ontario, WorkSafeBC in British Columbia, and each other province’s own equivalent — and arrears or an unfavourable claims-cost history in any one of them becomes the buyer’s liability on an asset purchase, or the corporation’s liability on a share purchase. Request a current clearance certificate or equivalent standing confirmation from each relevant board rather than accepting the seller’s account of it, since this is exactly the kind of liability that is easy to understate informally and expensive to inherit unknowingly. Where the agency places workers into higher-risk industrial or skilled-trades roles, also ask how premium classification has been assigned, since a misclassified workforce can carry a retroactive liability that only surfaces once a board audits the account.

Test the licence, not just the client list

Where a provincial temporary-help licence applies — Ontario requires one under the Employment Standards Act — confirm its current status directly with the licensing body and understand the timeline to have your own licence in place, since it is generally reissued to the buyer rather than transferred automatically. A licensing gap between closing and the buyer’s own licence being issued can stop the business from legally placing workers, which is a far more immediate problem than most diligence findings. In provinces with no equivalent licensing regime, confirm that directly too, rather than assuming an absence of a licence requirement in the seller’s materials is accurate, since the rules differ enough across the country that assumptions carried over from one province are a real source of error.

Unfunded liabilities that do not show up in a quick review

Accrued vacation pay, statutory holiday pay and any outstanding payroll remittances owed to the Canada Revenue Agency are liabilities that transfer with the business on an asset purchase just as much as they would on a share purchase, and a seller under pressure to close may present them as routine rather than material. Reconcile the payroll ledger against actual remittance filings rather than accepting a summary balance, and ask specifically whether any remittance has ever been late, since a pattern of lateness is a better predictor of future risk than a single clean current filing.

Read the client contracts for what happens when a placement ends badly

A client contract that looks solid on payment terms can still expose the agency in other ways — indemnity clauses covering a placed worker’s conduct, termination provisions that let a client walk away from a large share of billings with short notice, or exclusivity terms that quietly cap how many other clients the agency can serve in the same sector. Read the contracts behind the largest few clients in detail rather than relying on a schedule summarizing their terms, since the specific language in those agreements is what actually governs the cash flow a new owner is underwriting.

• Factoring or credit facility agreement, plus direct lender confirmation of its performance, borrowing-base treatment and assignability
• Current workers’ compensation clearance or standing confirmation from every province the agency operates in, including premium classification history
• Confirmation of provincial temporary-help licence status, or its absence, and the timeline to reissue any required licence to the buyer
• Reconciled payroll remittance history against actual Canada Revenue Agency filings, not a summary balance
• Client contracts for the largest accounts read in full, not just a summary of their payment terms
• Any outstanding employment standards complaints, orders or investigations tied to the agency’s placements