NYC-Area Staffing Firms Expect Slower Growth

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<strong>New York &mdash; Jan. 18</strong><br />The high growth levels experienced by staffing firms throughout the tristate area in recent years may be coming to an end, according to a recent survey of staffing industry executives conducted by accounting and consulting firm Citrin Cooperman & Co.<br /><br />Staffing business owners surveyed throughout the New York metropolitan area forecast slower growth in the near term, as higher costs &mdash; especially for insurance &mdash; competition from other hiring sources and a tightening job market join forces to squeeze profit margins. Tristate-area staffing firms had reported 20-25 percent annual average growth during the past three years. <br /><br />Among these executives, 72 percent expect continued growth, but at a lower rate in 2008, while 21 percent predicted a stagnant or declining market. <br /><br />Given this view of the marketplace, profitability and cash flow were cited as primary concerns among staffing industry executives. Despite these concerns, however, 68 percent of staffing firms surveyed do not have a senior-level financial officer, and only 37 percent receive a profitability analysis on a regular basis.<br /><br />&ldquo;The staffing industry is cautiously optimistic about their growth, but expect it at lower levels then they&rsquo;ve experienced in the last three years,&rdquo; said Nick Florio, Citrin Cooperman&rsquo;s partner-in-charge of the firm&rsquo;s staffing industry practice.<br /><br />&ldquo;In boom times, when sales and revenue are increasing, many financial and operational issues can be easily masked,&rdquo; said Florio, &ldquo;If growth is slowing, these executives need to take the necessary steps to successfully weather these challenges.&rdquo;<br /><br />Citrin Cooperman&rsquo;s survey polled staffing firm executives from New York, New Jersey and Connecticut in the second half of 2007. Citrin Cooperman has more than 25 years in advising personnel firms and serves more than 100 clients in this industry. <br /><br />According to the survey, several factors are contributing to lower profit margins, including competition from other hiring sources, a tightening job market and higher costs for items such as health insurance. <br /><br />When asked about key areas of finance, only 14 percent of staffing industry executives indicated their firms were in good shape. In addition to profitability and cash flow, issues involving the cost of capital and outstanding receivables also were prevalent. <br /><br />Insurance costs continue to be a major concern for staffing firms, with 49 percent rating it as a major issue. According to Florio, many executives believe they cannot guarantee the loyalty of their applicants and placements without providing health-care insurance. Others surveyed forecast a growing demand from clients to provide more extensive liability coverage and the increasing cost of workers&rsquo; compensation insurance. <br /><br />&ldquo;Staffing businesses will need to focus more closely on the financial and fundamental drivers of their businesses in 2008,&rdquo; said Florio. &ldquo;Firms that manage best through industry slowdowns are usually the one best positioned to succeed when the market picks up steam again.&rdquo; <br /><br />Among the survey&rsquo;s other findings: <br /><br /><ul><li>60 percent of companies surveyed don&rsquo;t have business succession plans, and among firms with two owners, 70 percent of those have not formally planned for a future transfer of ownership.</li><li>One-third said they were interested in buying another staffing firm, while 22 percent said they were interested in selling. </li><li>A majority (57 percent) would like to be benchmarked against other firms in the staffing industry and just under half (48 percent) said they would like to undergo a &ldquo;business valuation&rdquo; to determine their business&rsquo; worth.</li><li>The median company has just under $5 million in annual revenue.</li><li>More than half of the firms (57 percent) of firms have two or more owners, who tend to be male, with a mean age of 51 and 16 years as an owner, on average.</li><li>Almost all firms (93 percent) use internal sales staff to market their business, leaving broad room for use of external experts&rsquo; advice and consultation in today&rsquo;s highly competitive marketplace.</li><li>Most respondents pay sales staff with a mix of salary and commission. Commissions most often are paid monthly, after the client pays the company. There&rsquo;s a split between fixed-rate and tiered commissions.</li></ul>

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