Top 10 Accounting Questions Related to Starting a Staffing Agency

By AdminAssist tagged in Best Practices and Accounting - Feb 4, 2021 9:15:00 AM 5 min read
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You need to answer a lot of decisions when you start any business. Accounting can become a particularly difficult issue for staffing and recruiting agencies because they have complex relationships with clients and workers. Make sure you answer these 10 accounting and booking questions before you start a staffing agency. Knowing the answers will help put your business on the path to success.

1. What Accounting Software Should Your Staffing Agency Use?

Even the smallest business needs accounting software that helps it track invoices, payments, and expenses. Some features that you should look for in accounting software include:

  • Automatic invoicing
  • Payment processing
  • IRS tax form completion
  • Variable wage schedules
  • Automatic tax calculations
  • Cost predictions
  • Customizable reports

You have plenty of options when choosing accounting software. QuickBooks stands out for its user-friendly interface. If you want to save money by only paying for the features you need, you might try Wave.

2. Should You Choose an Accrual or Cash-Basis Accounting System?

Make sure you know the differences between accrual and cash-basis accounting systems. With a cash-basis system, you only record payments when clients pay invoices. With accrual basis accounting, you record revenue when you finish a project regardless of whether the client has paid yet.

You will likely choose your accounting system based on how much revenue you expect during your first year. If you plan to build your business slowly, cash accounting might make sense because it ensures that you only pay taxes on money after you get paid by clients.

3. How Do You Plan to Fund Your New Business?

Starting a staffing agency can cost a lot of money. Common expenses include:

  • Equipment such as computers and furniture.
  • Rental fees for your office space.
  • Insurance for your business and employees.
  • Utilities.
  • Advertising and marketing.
  • Background checks.

Unless you already have contracts for your agency, you will need a way to fund operations before you start earning money.

Few people have enough cash on hand to start a staffing and recruiting agency. You could fund your business with a small business loan or investments. Unless you can pay out of pocket, you will need to convince lenders or investors that you have a profitable business plan. Regardless of which option you choose, you can expect to fill out a lot of paperwork that describes your projected expenses and revenues.

4. Do You Have a Reliable Way to Track Billable Hours and Payments?

Tracking billable hours can get confusing quickly for staffing agencies. You need a system that tells you exactly how many hours your employees and contracts worked for clients. You also need to account for any travel time that your employees get paid for. To make the situation even more complicated, you have to match invoices with payments to ensure accuracy.

5. How Will You Get Clients to Pay Their Invoices?

Clients who don’t pay invoices on time can mess up your entire accounting process. Establish a method that will encourage everyone to pay you by the due date. You might want to:

  • Choose accounting software that automatically generates clear invoices and delivers them electronically.
  • Use background checks to avoid clients that have negative records.
  • Send email reminders as the payment date approaches.
  • Get more serious by consulting a lawyer about seriously delinquent accounts.

6. How Do You Plan to Pay Employees?

Payroll will probably cost more than all of your other business expenses combined. You must have a reliable way to pay employees and contractors accurate amounts.

Ideally, you should have a flexible payroll system that automatically deducts taxes and other expenses. You need a flexible option because employees and contractors get taxed differently.

7. Can You Scale Your Bookkeeping Process as Your Business Grows?

Bookkeeping processes that work well for very small businesses don’t necessarily meet the needs of larger companies. As your staffing agency grows, you will need to scale your bookkeeping.

If you don’t already have a scalable process in place, growing pains will likely burden your agency.

8. Will Your Bookkeeping Process Help You File Taxes and Determine Your Quarterly Payments?

The IRS expects businesses to pay quarterly taxes. During your first year, you don’t have much data to help you determine how much you need to pay each quarter. If you pay too much, you give the government money that you could spend on growing your business. If you pay too little, you could face a large bill on tax day.

9. Can You Identify Expenses That Qualify for Tax Deductions?

You want to pay the precise amount of taxes that you owe. Paying too much will harm your business. Paying too little, however, could increase your risk of getting audited or charged fines.

Generally, you can deduct any money that you spend on your business. Deductions for a staffing agency can get complicated, though, since you might need to spend money on things like:

  • Travel.
  • A home office.
  • Entertaining clients.
  • Expensive equipment that you might want to deduct over several years.

The percentage that you can deduct varies by the type of expense. If you don’t know what expenses—and what percentage—you can deduct, you could find yourself in trouble with the IRS and your state.

10. Can You Save Money by Outsourcing Your Accounting Needs?

Accounting software might meet your staffing agency’s basic needs, but you will probably need a professional who knows how to make informed decisions that benefit your business. Hiring an accountant will cost you about $71,550 plus benefits. You also have to pay for that person’s equipment, office, and software.

There’s a good chance that you can save money by outsourcing your accounting, payroll, and invoicing needs. Use AdminAssist’s calculator to determine whether you will spend less money by hiring an in-house accountant or outsourcing tasks.

You can also contact AdminAssist to talk to a representative about your staffing agency’s accounting needs. You might find that outsourcing gives you better, more-accurate accounting services for less money than hiring an employee.