VensureHR Staffing Alliance (VSA) Webinar
Protecting Your Gross Margin: Masterclass for Staffing Leaders
Friday, September 22, 2023 at 12 PM ET
Beth Griffith (Moderator) All right. Looks like we’ve got some people joining us. We’re going to give everybody just a little bit more time to jump in here to our master class. In the meantime, welcome. We’re going to be chatting a little bit about protecting your gross margins for staffing leaders. So we’ll go ahead and jump in to some housekeeping things in just a few minutes. But while we’re waiting for everybody, we’d love to hear where you are calling in from. So if you want to jump into the question and answer a little chat bot up there, give us a little indication of where you are joining us from. I’ll start it off and tell you that I am in Billings, Montana, and we are shifting in our weather today. It was 90 degrees last week and now we’re looking at 55 and rain and fog and thunderstorms. So it’s getting a little bit yucky here. Matt, you’re where it’s sunny, aren’t you? Where is it? There.
Matt Kaplan, VSA Yeah, I’m in Orlando today, thank God, you know. And Jerry’s in. Where in Michigan are you guys?
Jerry Grady, UHY I am in the great state of Ann Arbor. That’s what I bet. I do want to talk to you about Montana, because that’s where my other son is moving to. So I need to find the right place.
Beth Griffith (Moderator) Oh, my gosh. Yeah, I could talk about Montana for hours, hours and hours and hours.
Jerry Grady, UHY He’s looking for 100 acres where nobody will be around him and he can shoot his libertarian gun is what I like to say.
Beth Griffith (Moderator) I love it. I may have to meet your son. I can still say that. We got Robin joining us from California, Sunny California. Love that. That’s the priority Workforce team. Thank you guys for joining us.
Jerry Grady, UHY Somebody just. Oh, Mr. Murphy, good to hear and see you.
Beth Griffith (Moderator) Lima, Ohio. Yeah. All right. Midwest. Hey, that was just in Omaha, Nebraska.
Matt Kaplan, VSA Yes, I was.
Beth Griffith (Moderator) That is, but. All right, guys. Well, I’m going to go ahead and jump into our housekeeping. We’ve got a lot of really cool things to cover today, so we’re excited to get into the subject matter for you. First of all, this meeting will be recorded, so will send you out a copy of it as soon as we’re done. If you want to share it with anybody and make sure that they’re getting all the pertinent information that we’re talking about. And again, just in case there’s anything you want to reference, we’ll record this and send it out to you afterwards. There will be time for question and answer at the end of the session. That being said, we really want to make sure that we’re hitting the questions when they’re hot for you. So cruisin down to the Q&A button down there and pop any of the questions that you have in there, and we’ll make sure that we get them addressed either during the conversation or following up at the end of the webinar. And last but not least, we’ve got lots of great content for you guys. So if you guys are ready, we’d love to go ahead and jump right into what we’ve got going on. The first thing I’m going to do is introduce our wonderful speakers today. We have two great experts with us, Mat Kaplan, who’s the Division President for Back Office Solutions at VSA. And then we’ve also got Jerry Grady, who is our partner and managing director at UHY. Right. So, Matt, let’s go ahead and introduce yourself a little bit before we get started.
Matt Kaplan, VSA Hi, everyone. I’m Mat Kaplan, the division president of Sunset Cove [Division of Vensure]. I’ve been processing payroll, billing, air cash apps for the last 13 years for staffing firms from 0 to 500, 600 million. I was in the military or prior to that and loved the staffing industry. My family’s been in it for 70 years and we bring a unique look upon the back office.
Beth Griffith (Moderator) Great. Jerry, let’s hear a little bit about you and UHY.
Jerry Grady, UHY Thank you, Beth. I am Jerry Grady. Looking forward to being here with Matt and Beth today. I have about 25 years experience in the staffing industry. I’ve been a CPA for 39 years and I am the lead partner in the industry, lead partner for UHY, for staffing firms. So we have a unique perspective in that we do understand staffing firms. We do drive deeply into them. We aren’t just your typical bean counter firm. We really do get involved in, you know, not only the back office solutions, but also merger acquisitions, also looking at what is the right way to to run an organization. And, you know, we’ve worked in partnered with Vensure for quite some time now, and we’re just glad to be here with all of you.
Beth Griffith (Moderator) Perfect. Thank you very much. Well, a webinar on a Friday wouldn’t be as much fun if we didn’t have a giveaway for you. So we do have a fun little giveaway for you guys. All we’re going to ask is that you answer the question that’s going to pop up in the poll. What assets are you currently using? Make sure that you answer that for us and then we’ll go ahead and announce the winner coming up a little bit later. So what ATMs are you currently working are using? Those options are right there for you on the screen. So go ahead and answer that for us. Give everybody a minute to answer there, and then we’re going to go ahead and jump in and get started. All right. So the next thing we’ve got going on is we’re just going to have some really serious conversation about everything that you guys deal with on a day to day basis. We’re going to start with some Q&A for Matt and Jerry, just kind of talk through some things again as you guys get going on this. If you have any questions, please go ahead and pop them into the Q&A chat and we’ll go ahead and address them and get them answer for you. We’re going to go ahead and start with Matt and talk about some common mistakes. Matt, what do you see from a staffing point of view? What are some common mistakes you see when it comes to managing the data and the operations?
Matt Kaplan, VSA You know, the common mistakes that I see is that people really don’t put an audit process on the payroll in billing before they process payroll and billing. Every ATS allows you to export a pre gross margin report from that working table, being able to look at that information and really put it through an audit process, finding mistakes before they happen. It should be the number one priority of the back office. You know, when you process something wrong in an ETS, you can fix. Let’s say you process the worker’s comp code incorrectly, right? That mistake follows through to the commission report. Right. So if I put someone, as you know, in a code that’s $4 when it should be $0.38, right. That mistake is going to fall through all the way down to commission so I can fix it later on when I’m doing my reporting for my worker’s comp and move all that worker’s comp code to a different code. But that gross margin is forever going to be wrong tied to that code. Same thing with pay rates. Bill rates. Looking for inconsistencies in the data is important. 99% of mistakes flow through from the back, from the front office to the back office. People even reuse that old job order. They raised the pay rate $0.50 but forgot to raise the mark up. You know, those are common mistakes that we find and that give us a candidate and a client a bad experience when you have to, you know, pay them, you know, an adjusted payroll rate for a dollar for every hour they work that week. And the bill and the bill was incorrect. So making sure that you can find those things before they happen would really solidify your relationship both with the candidate and and the client.
Beth Griffith (Moderator) Perfect. Jerry, what do you say to that?
Jerry Grady, UHY Yeah, I think Matt, you know, Matt really touched on one of the areas that’s really important, and that is the accuracy of that burden calculation. What we have always seen is that, you know, they set up their back office at a solution. They put in the worker comp code, they put in the burden, the payroll taxes, the. SUTA and some some firms will use a another labor burden to kind of take care of the rent and things of that nature. And what we see is that that’s not been updated for sometimes anywhere from a year to sometimes five years. And that does have a drastic effect on being able to make any type of financial decision you’re trying to make because your ATS is a starting point, as Matt spoke about. And if my burdens are wrong and I’m paying my salespeople on that gross margin and paying them a commission, well, now I’m I could be seriously overpaying the salesperson on that job, as well as the recruiter that’s working on that job. Even further than that, though, now you’re making decisions based on a gross margin report, as Matt talked about, that you run your report by employee or by client or by job, and all of a sudden you think you’re making 25, 35% and you’re not looking backwards and looking at your your gross margin. It might be on your financial statement. So having that data set up correctly and making sure that it’s looked at on a quarterly basis is what’s really important for firms in utilizing, you know, their ATS system.
Matt Kaplan, VSA Jerry I’d also add that, you know, when they pay non billable hours such as sick time, I’ll light duty any of those times that usually what I see is staffing firms create their own client in that database called you know what you know active staffing or whatever staffing name they are and they put all those non billable hours underneath that that customer where you really want to put that under the customer that is actually affecting. So you could see if you have a systemic problem at that customer or is that customer profitable. Right. You really want anything that you can tie back to the customer in that gross margin data?
Jerry Grady, UHY Yep. And that and that, you know, that that drives another point to Matt is that, you know, sometimes, you know, we’ve seen where somebody may actually put the salesperson and or the recruiter under that client as well and track their non billable time there so that they really can see what the overall job is costing them and what that overall client is costing them. And I think, you know, Matt, you bring up a good point because we don’t see enough of that that that variation and that reporting where they take their financial statement and they build it maybe not all the way down to the client detail, but they build it so that it kind of replicates what’s coming out of the ATS so you can spot those errors. And if it’s wrong in the ATS, then at least the financial statements are going to be able to spit that out and say, Hey, you have a problem. You know, your overall gross margin report showing, you know, a 12% margin or $100,000, yet your financial statement showing 40% margin and, you know, $300,000, you know, there’s a problem somewhere and you should be looking at that very quickly.
Matt Kaplan, VSA And like you just said, with additional burden, every gross margin report usually allows you to add that additional burden. Right. So if you’re paying commission of 3 to 5%, you can normally put that on to a gross margin report to add on to it to be able to calculate what you’re really making that once you pay the commission.
Jerry Grady, UHY Yes. Correct. Yep.
Beth Griffith (Moderator) So what I’m hearing is that a lot of this needs to be done. You know, as you pull those reports, you’re going to kind of hear about those things and find those things and see the errors in what you’re doing. If you back it all the way up to the point that Matt was talking about doing it on the front end, what are some some of the preventative things that you can do throughout this whole process to make sure that you’re not getting errors at the end?
Matt Kaplan, VSA So every system has what’s called like a pre bill report, right? Or an assignment proof. Right. So what I recommend is going through that right before you start entering time cards and accepting your time cards into the back office. Right. If you put a proof on that process before you accept the time cards. Right. All of the changes that you found or mistakes that you found you’re able to capture before you start entering time, that would really be the preventive measure to ensure that no one forgot to do anything that they needed to do and update assignments correctly and really capture those mistakes before they happen. What we talked about before is the second preventive measure is doing it while you’re doing payroll, but you need to be able to do either it both in concepts. You have a double check before you export your payroll to a third party or process it yourself.
Jerry Grady, UHY Yep. And Matt, you the point I’ll add to that is that a lot of times we’ll see some staffing firms where they will actually have a a bid form. They’ve used a spreadsheet to calculate what that gross margin would be. And so with Matt’s report of, you know, the pre billing report, you know, you’re able to kind of look at, well, this is what I put it out there in the marketplace. This is what I was expecting to see for this employee. You know, and by having the pre billing report done, you’re able to see if there’s any differences before. As Matt says, it goes to that final stage that so that, you know, you’re not missing anything. You know if you thought you were going to have a 25% margin and the pre billing report is showing that you’re only getting a 10% margin, well, before you send that bill out, you can at least look at that data to make sure it was set up right. And I think the biggest thing to Matt is that what we have found is on boarding somebody, there should always be a check and a double check whenever somebody is on board it to make sure that all those numbers are correct when they are preloaded, because that is where we do see a lot of issues pop up.
Matt Kaplan, VSA And that’s where that trickle down economics come in, because once you process it wrong, right, it really affects how you make business decisions. Right. So, you know, maybe there’s been accidents at this client, right? And you want to end you know, you don’t take that into account, right? There’s light duty at this client. You need to be able to look at these things to see if. Yeah, you would you have you were making an 18% gross margin, but there were ten accidents at this client. And you’ve paid X amount in claims, right? Is that client profitable or not? You have to be thinking like that in order to maximize your gross margin and your net profit.
Jerry Grady, UHY Great points, Matt.
Beth Griffith (Moderator) So when you’re talking about accidents and things like that, I can’t help but bring up things like the work comp codes and SUTA and things like that. Are those extra preventative measures that you suggest putting in place? How do we work around that?
Matt Kaplan, VSA So each one of those has unique updates, right? Worker’s comp could happen quarterly shoot, it could happen monthly depending on what state you’re in. Right. So, you know, what I try to do is have once a quarter that I’m checking to make sure that my rates are correct in any ATS that I have. Right. Because, you know, you could be waiting for the end of the year for your SUTA to be updated or you’re or rate changes or worker’s comp renewal to give you all those things. But in some states that renewal is monthly or quarterly, they’re not all at the same time. So putting yourself on a quarterly audit process would be the best solution to ensure that all that information is accurate. Because like we talked about, once it’s wrong, you can’t really go back and fix it.
Beth Griffith (Moderator) Jerry anything to weigh in on there?
Jerry Grady, UHY No. And I do believe I you know, I Matt for the SUTA. I think that’s an area that a lot of what we have seen is a lot of staffing firms don’t know that some states are on a quarterly update on SUTA. You know, we’re so used to seeing our SUTA changes come in February, you know, but the Great Recession of seven, eight, nine, you saw a lot of states change and say, you know what, maybe we should start looking at this on a quarterly basis because they had to pay the federal government back. And so I don’t know. Sometimes I see Ceuta rates that are 50 to 60% below what their actual Ceuta rate is. So quarterly does give give that the rates system, looking at it quarterly gives it the ability to make sure that you are updating it. And you are basically look, we call it like a periodic, you know, the workers comp codes. They do change constantly. There’s one area to match that a lot of people, you know, don’t think about, and that’s the health insurance, you know, health insurance. And, you know, even though the employee may not have taken that health insurance, they might have a life expectancy change and therefore that health insurance, maybe now they are going to take health insurance where before you would have had health insurance at zero for that employee. But now they’re taking it. Now you got an extra burden and an extra cost on there. So one of the things we have always recommended from a preventative standpoint is when you do put in, you know, an employee, you load up an insurance rate as well, whatever the normal insurance would be for somebody, whether they take it or don’t take it, you put it in there. So at least from a standpoint of understanding what it really does cost for that employee, if something changes, you then can go ahead and get good numbers and have good gross margins.
Matt Kaplan, VSA And a lot of times what we see sometimes is people use a blended burden to do their gross margin report. So they’re putting like a 20%, 22%, depending on the industry, right, of their blended burden. And what I would say to those people is that you got to make sure that you’re reviewing that the same way we’re talking about once a quarter, right? Because if your rates changed and you’re putting in blended burden and you’re calculating a blended burden onto and that’s what you’re using as conditional basis to your employees, you want to make sure that that’s in line with your true cost, right? You don’t want to all of a sudden think that, hey, we’re making a we’re using this 20% blended burden, but our real costs became 23% because of all the SUI and turnover and cost changes that have happened over the last couple of years. And now when I get to the end of the year, I’m not as profitable as I thought. And I have wasted gross margin because I overpaid commissions that I didn’t take into consideration.
Jerry Grady, UHY Yeah, and a lot of from a preventative standpoint, based on that, what you’re looking at is you can easily set up on your financial statement, whether you’re using QuickBooks, you know, or Dynamics or Net Suite. You say whatever product you’re using, you can set up a very quick spreadsheet that is just a burden spreadsheet number. And basically you can take your total billable hours that were charged out on a monthly basis and compare it to your burden and then do it as like a rolling 12 month average. But somebody’s got to be looking at it because again, like Matt says, you know, a 2 or 3% increase in burden. You know, when you look at a payroll of a, you know, a couple of million dollars, all of a sudden you go from a positive to a negative very, very quickly. So it needs to be reviewed, at least. You know, I like doing it monthly. You know, most of my clients to it every six months. We tell them every quarter. But I prefer monthly.
Matt Kaplan, VSA I would agree.
Beth Griffith (Moderator) So when it comes to managing that, obviously staffing companies have two different options. They can do it in-house or they can do it through a third party or outsourcing type of situation. Can you weigh in on both of those different versions of that when it comes to running these things?
Matt Kaplan, VSA Well, you know, most most staffing firms start off right with the owner involved in the payroll and billing, or they have someone internally, right, doing their payroll and then they outsource for tax compliance to a third party or they outsource the entire payroll to a third party. You know, what we talked about is with the laws changing every day in every in every state. Right. Having the owners be reliant on an internal staff becomes more problematic as we continue to see changes in the system. What COVID taught us right is that you can’t be beholden to one or two or five team members in the back office running your back office. Yeah. What if that person gets hit by a bus? What if that person gets sick? Like, there are many different. What if they get in an accident on a Wednesday? What if they take vacation? Is the owner or owner or your senior controller popping in to do their payroll or billing? Like how you’re if you’re working in the business, how are you working on the business? Right. It gets where it gets you from growing and doing what you do best. And that’s really staffing. Right. I don’t I don’t you know, we all got in the staffing industry not because we wanted to be in the payroll business. Right. It’s a second part of what we do. It’s an ancillary product. And I would allow the experts to do it. Right. And then it comes in to cost effectiveness and stuff like that and really understanding, you know, what you’re going to pay versus what you’re getting. Right. And there’s two folds for that. Jerry, I’ll let you jump in right after this. But it’s for me, it’s it’s peace of mind. Right. So knowing that I’m in compliance, right, when I look to exit one at the end of the day from a staffing firm’s point of view. Right. I have a piece of paper that says I’m in compliance with tax when I’m outsourcing. So due diligence, right. I’m not going to spend this much time making sure that, you know, going through your compliance. Right. When I know you’re you’re outsourcing, right. When you’re doing it internally. Now I’m really going to concentrate. Hey, has everything been done? Has local taxes been done correctly as a paper returns been mailed? Like there are things that you need to do depending on the jurisdictions you’re in that that are changing every day. So that’s one one aspect of it. And the second aspect for me is if that process is still manual, right, you’re not going to get the valuation or multiple that you’re looking for in the market, right? Knowing that you have a streamlined process allows you to get the highest multiple in the back off so that you can get out there. Right. And people take a big look on how do you have a scalable solution.
Jerry Grady, UHY Yeah. And I and I agree. I think that, you know, when you talk about in house and out outhouse you know when you what we have seen I mean again I’ve been doing this for 39 years, so I have seen it when people had two people and I now see it where people have 12, 1300 people. And what I discovered is and it’s no different than a CPA firm doing someone’s payroll. When you are trying to be an expert at something, it is not the right thing to do because that’s not your business. When a client calls me and says, Hey, we want to go ahead and pull our payroll back in. I literally freak because I know what’s about to happen. I know they’re going to miss their 941 quarterly payment. I know they’re going to miss their three day payment. I know that their 401 K payments not going to be made within the three days as required by the Department of Labor. So when you start looking at all these compliance issues that you have to maintain as a payroll person, there aren’t that many payroll experts that I could hire and put in to every single firm that’s out there. The penalty and interest alone of a missed payroll in one quarter could far outweigh the cost of hiring that outside person to really do the work for you, but also know that you have that peace of mind, that they are updating that burden every single quarter. They are logging in and grabbing the SUTA changes that are out there. They are talking to you about, hey, you know what? We had your burden set up in this ATS system at 23%. Have you looked at it lately? Because we want to make sure that you know your data is correct. So their job has become and is focused 100% on making sure you are in compliance. And as Matt just said, you know, the taxes are extremely important. Anybody looking to exit the first due diligence question that is done is we need to know that every single state you are in, you are 100% compliant and that there are no outstanding tax issues because if there are, we’re not going to be able to do the deal until those get resolved. So I think that, you know, from an inside outside, I am a huge proponent of being and utilizing the experts to do it. And for Matt’s second point, the one thing when we talk about, you know, when we have clients hire us, when they come in first sit down with us, the first thing I always ask them is, are you in the business? Are you on the business? And what that basically means is what Matt just said is if somebody is working in the business, they are so in-depth in the business that the business is not growing. When we start getting them to work on the business, which means they’re becoming strategic visionary leaders for their business and they’re looking for growth opportunities, the business explodes because they don’t have to be focused so much on that daily or weekly payroll or when their four on one chaotic comes in and, you know, the CPA firm walks in and says, oh, by the way, you’re going to have a $30,000 penalty because you forgot to make your 401 K payments for three straight months. Not a great thing to do because, again, you could have had that all outsourced and had no problems at all and you were working on the business growing it instead of in it and not having that chance and that opportunity to grow it.
Matt Kaplan, VSA And the most and, and to add to that very the common mistakes that we see with that are not really the payroll that the big batch that you run on Wednesday for Friday. It’s the small payrolls that you run on Thursday and Friday and Monday and Tuesday when you’re trying to get the late runners get paid because the client didn’t approve the time. Remember, all taxes are due from the check date. Right. And so what we see a lot of times is they make their regular payment on time, but they forget to run that tax deposit report for those small checks. And that’s where the penalties come into.
Jerry Grady, UHY Very, very true.
Beth Griffith (Moderator) That’s that’s really great information. Before we shift over to profitability, quick, I want to just remind everybody that please, as you have questions, if some of these things spark a question for you, don’t forget to put it in the Q&A box and we’ll go ahead and get that answer to them. We’re going to shift gears a little bit. We’re going to talk about profitability. I’ve heard you both say you need to work in the business or you need to work on the business. You get too involved in the business that you’re not helping grow. But at the end of the day, all of this is going to come down to profitability. And are you meeting that bottom line? Are you in the black or are you in the red? So can you highlight for us, Jerry, some of the areas where profitability might be overlooked and where they’re missing opportunities?
Jerry Grady, UHY Yep. You know, we always focus on gross margin. That’s the first thing that every staffing firm looks at. But what you really need to be looking at is also what we call, you know, below the line or below the gross profit line. And one of those lines is your internal payroll. We strive to try to make internal payroll no greater than 47% of your gross margin. So, for example, if your gross margin is $1,000,000, your internal payroll cost before any type of incentive type bonus should be no greater than $470,000. And the reason that we strive for that is because every time you get above 50% of internal payroll to gross margin, there’s not enough dollars to go around to cover all the additional costs that you still have to cover. And so we would recommend that one of the things that you put on your on your financial statement is setting it up so that you’re constantly focused on here’s my gross margin. Here is my internal payroll without office or salary, unless that officer is a working officer. And then it literally just shows you what your net profit is right there and what that net profit is before all your operating expenses. As you do that and as you really start focusing on that number, for every 1% that you are increasing, you could be adding 10,000 to up to 100,000, maybe even 200,000 to the bottom line, which is what you’re striving to do. It’s a lot easier to control internal payroll than it is to control the gross margin sometimes. We also would expect that you kind of look at, you know, the incentive pay that you’re paying to your salespeople. You know, a lot of times we put a plan in place, you’re paying them quarterly. And, you know, before you know it, you know, and I always love this phrase they become fat, dumb and happy, and salespeople aren’t performing anymore. You know, all of a sudden they got a house account that’s 20 years old and they’re still getting paid the same margin, yet they haven’t done anything to earn that margin. And while it’s always difficult to have that conversation, you should be looking at your incentive contracts and payments every year. Every recruiter, you know, should be at least getting three times their salary as gross margin per quarter. And every salesperson should also be doing the same. By that, I mean, if a recruiter is being paid, you know, on a quarterly basis, let’s just say they’re making 50 grand a year, so they’re getting 25 a quarter. You know, at 12 five a quarter, they should be generating at least $40,000 of gross margin. And if they’re excelling and going above that, that’s where you reward them, because whatever you reward them above that is, again, it’s going to the bottom line. The last thing we always like to look at is the brick and mortar business is always hard. You know, having offices, especially an LI. You know, people don’t look at what is it really costing me for that office. So you want to do what’s called a top down approach. And from a top down approach, what you’re basically doing is you’re taking all your cost, your rent, your utilities, your property taxes, your office manager lead, and any other cost that’s 100% directed to that office. And then you want to divide it by your gross margin percentage, and that tells you how much you need to do from a revenue standpoint for that office. And so if that office is not generating that amount of revenue, then you know what? You have a problem and you really need to focus in on that office and see what can you do to do better. And then the last thing is, is this new work from home model. You know, light industrial doesn’t have it as much, but you know, if you’re a travel nurse program, if you’re a IT staffing firm, an engineering staffing firm, what we’re seeing is, is this work from home model has created state income taxes that you now are responsible for, which does become part of your cost of doing business. And many people are forgetting that those cost are going to come back to you at some point and bite you. The average state income tax is 6% across the country. So as you’re building out and hiring people who are working for you say they work in Texas, but they’re doing work for somebody in New York. Unfortunately, you’re going to owe some state taxes in New York, but you didn’t include that in your gross margin calculation. Therefore, you have to remember, “okay, I got to go back and redo that because of where I hired this person.” Matt?
Beth Griffith (Moderator) I didn’t know that.
Matt Kaplan, VSA Yeah, I would. I would add, you know, maximizing government programs is another way to ensure profitability. You know, if you’re not doing WOTC, worker opportunity tax credit, right, that could be the number. And especially in light industrial, that could be the number one profit driver of the company. Right. It allows you to get 25% of what you paid someone at 120 hours up to a certain dollar amount and then 40% of what you paid someone up to at 400 hours, up to a certain dollar amount. Right. You’re able to get those people who qualify for that are more profitable to send out to clients because you’re getting a ROI on on them back then that are got it’s better than what you would get if those person didn’t qualify. So, you know, that program is important. In New York, they have New York youth credit and in every state they pretty much have different tax credits that allow you to get back some kind of dollars for your candidates working. In addition, there is opportunity to import employment zone tax benefits. There are many tax benefits that if you’re not currently utilizing or thinking about that you should go out and try to get a vendor to manage for you because they could really add back significant dollars back to the owner in profitability.
Jerry Grady, UHY And I think to add on to that, Matt is also your worker’s comp code player classification. Many times what we have found and it usually gets found under a worker comp bought it that, you know, the owner might be paying worker’s comp when they’re not supposed to be or you know, your admins are set up as board carriers when they should be set up as an admin person. So there is some insight into making sure that you are looking at those worker comp classification codes, you know, on a quarterly basis, maybe every six months, but especially when you’re doing your audit challenge, those worker comp people do not just take because they said it’s that code, sit back and talk and discuss it and analyze it, make sure it’s there because it is a cost that can that we could provide some refunds for you because they were overcharged through the whole year.
Beth Griffith (Moderator) Perfect. Great insight, you guys. Jerry, could you provide us maybe just a couple of more tips people can use to kind of move their profitability forward?
Jerry Grady, UHY The you know, the biggest area that we see on profitability is is it starts falling into play on your your cash flow model is making sure that you’re churning your accounts receivable, making sure that you’re staying on top of your clients. You know, we use a product called profit sense for a lot of our staffing firms. And we so we’ll look at things such as return on assets. We look at things such as current asset, current liability, quick ratios, current ratios. But what we’re really doing is we’re benchmarking your gross margin against people in your region. We’re benchmarking against people in the country and your revenue size. And so you always want to somehow figure out how can I benchmark myself against others? And, you know, all due respect here, if there’s anybody from any of a ASA or SIA on this call, a lot of times what we found is those benchmarks that they do are kind of inflated. So you really want to work with people that have true numbers that are really there. You know, I think one of the other areas that often gets overlooked is your advertising cost. It’s also your rental cost, you know, your telephone cost, your cell phone bills. Focus in on some of those what I like to call the nickel and dime items, because for every dime you collect, you only need ten dimes to make a dollar. So if you can get out there and really focus in on that, what’ll happen is that’s going to increase your profitability. You’re increasing your cash flow, you’re reducing your borrowing costs by staying on top of your your air. And like Matt said, on watches and all those other credits, because he really stole my thunder for this. But Matt’s an expert on that. I will tell you that. He gets it. He does it and he lives it. It’s going to help you on your exit strategy. The whole idea is, is you want to maximize that EBIDTA because that is what people are buying. You know, they’re not buying revenue, they’re buying EBIDTA. And if you can run a staffing firm at a 10 to 12% EBIDTA number, that’s to that’s what’s going to provide you a really, really strong exit strategy. And I think the biggest thing that I have been really pushing the last while right before COVID, actually it is outsourcing. I am a firm, strong believer that you can maximize your profitability by outsourcing certain issues. Again, if I look at payroll, if I look at billing, to hire a person to do your billing could cost you somewhere between 60 to $80000 plus plus. Then you got to hire somebody to manage your receivables, then manage your time keeping that whole department. You could end up seeing that that department is costing you 2 or $300,000. Do not be afraid to take a look at that outsourcing. Many times clients come to us and say, you know, I’m paying this outsourced company X amount of dollars, they’re charging me a fee, blah, blah, blah. And I sit down and I look at it and I go, Where do I find them? Because that fee is half of what it would cost you to bring in the employees yet alone, the headache that it’s going to entail. So outsourcing is a really key aspect that I shoot towards.
Matt Kaplan, VSA Jerry, you bring up a great point there, right, with that payroll person has been with you for 10, 15 years. Right. They’ve gotten annual increases and they’re really out priced the job that they’re doing. Right. And so now you have this payroll manager who has been with you for a while, who’s now making 85 to $90000 a year when the role really only costs 65,000. Right. And so are 50,000. Right. And so that you’re playing burden on a higher number and you really have this resource that, you know, although they’ve been doing a great job for you, you’re really spending 25 to 30% more than you need for the position.
Jerry Grady, UHY I totally agree. I mean, we as accountants. I mean, one of the things that we do in any any firm when you’re a professional firm as well, is you look at the rate you’re paying for the job you’re paying. So, Matt, let’s say you have an $85,000 payroll clerk. What are the options and what are the variables where you could take that person and move them into a new role that provides you with more analytical analysis on your gross margin and your sales mix? And you have outsourced what they were doing. Now you just got a double win because now you’re able to focus in on that gross margin and your sales mix and outsource People are handling your payroll for you and you’re not worried about, oh, I got to make sure that payment gets made or that filing gets done. So, yeah, I mean, again, I’m just outsourcing is just the way to go in today’s world.
Matt Kaplan, VSA The other thing that I wanted to add that I forgot when you when you touched upon is client statements, right? In staffing, I feel like client staffing owners are afraid to send out client statements to clients. If you get a statement from your cable company, you get a statement from everyone, right? Don’t be afraid to send out client statements to talk to your clients. Right. It’s a valuable tool to your to to improve your air. Right. You’ll see when you’ll see when invoices weren’t received, you’ll be able to send it your quicker turnaround. Your DSO is going to go down when you send out client statements.
Jerry Grady, UHY And that’s a great point I was just about to bring up is, you know, that the day sales outstanding that Matt just referenced DSO and also the what we call you know, how are you? How are you turning your air? When you look at an air for staffing firm, the average is approximately 63 days right now. Two years ago, that was 46 days. So just in the last two years, air has now churned almost 15 to 20 days from where it was before. That means you have lost two turns on your air in a year. That means that if your air is averaging $6 million, that means you’ve just increased your interest cost by a minimum of, you know, whatever your interest was, 6%. You know, that’s what you just increased your costs because now you have to carry that air longer than you had previously. So Matt brings up a great point on statements. You know, I don’t think about that that much. Again, there is an outsource person looking at it, what’s best for the organization. And that’s why I believe outsourcing really works because they come up with the best practices for you.
Beth Griffith (Moderator) I love that you guys have talked a lot about outsourcing and we’ve heard a lot of really good kind of key terms in the last few minutes benchmarking, making sure you’re looking at things from a top down approach, doing the client statements and really making sure you’re protecting yourself for things like what’s in and all of the great information that you guys have given us. Obviously, outsourcing has been a big part of this conversation. So I would like to go ahead and poll the audience right now and just kind of talk to you about if you’re currently outsourcing your payroll. So we’re going to go ahead and get a pull up there and just let us know, yes or no, single choice if you’re currently outsourcing your payroll or not. I think that’s going to help us all really, really kind of move on with this conversation, if you guys don’t mind. So I’ll give you a minute to answer that. While we’re going through that. I want to talk to Matt and Jerry a little bit about some of the benefits of that route. What are the some of the potential reasons that you would want to go that way? And then let’s flip it on its head. Let’s talk about reasons that maybe you wouldn’t want to.
Jerry Grady, UHY Matt, you want to start?
Matt Kaplan, VSA Yeah. I mean, the only downside, right, to outsourcing that owners would tell you, especially staffing owners are going to tell you is control. Right. They want to be able to process a check whenever they need for a candidate. They want you know, they want to be able to get people paid. And when you outsource and the stigma is sometimes when you outsource to a vendor that doesn’t really understand staffing. There is that that. Control issue that happens because they don’t understand your business model. Right. So understanding that you’re going to a vendor who understands that you’re going to have multiple batches per week, you’re going to pay people on any given day that they’re willing that they need to turn it around within an hour or two. Right. That the candidate is waiting in your office. That could be hostile. Right. And that you need to be able to process it for them. Right. Is really the benefit of outsourcing, Right. When you have the right vendor, Right. When you have the right vendor who understands your business model, that that is an extension of your organization. That’s not just outsourcing to, you know, an ADP or a Paychex. Right. Who don’t really understand your model. It becomes hard. Right. So that’s really the downside of and the positive, you know, depending on how you look at it of how you out you know, what of what outsourcing brings. Jerry.
Jerry Grady, UHY Yep. And I think that, you know, again, we’ve stressed how that I feel. And I mean, you know, again, I’ve been doing this 39 years and and I’m pushing outsourcing more heavily now than I ever have. And control’s always been an issue. But I think that the control can be resolved very easily, because on outsourcing, you’re always going to have somebody internal who’s going to be managing that outsourced partner. And so they you get to build a really good relationship with that outside partner and you’re able to do things and put people in the right places. You know, great companies, they follow the model of like getting all the right people in the right seats. And what I’ve seen is that when you do outsource, you put the right people in the right seats, because now you can focus again and we’re going to go right back to it, focusing on the business. And that’s where I believe the biggest advantage for outsourcing is, is focusing on that business. Because, you know, somebody who’s in your business, the outsource company is really focused on what they need to do. I’ve seen outsourced companies where they’ve generated and churned AR, you know, from 75 days and gotten their DSOs down to 30 to 33 days because they follow what the outsource company talks about. We outsource everything. When you think about it, you know, most staffing firms are outsourcing their cybersecurity. Most of them are outsourcing their ATS because it is a model. You know, it’s an outsourced SAS model. They’re outsourcing their telephone systems or I.T. systems. So why wouldn’t you at least take a look and say, you know what, I want to outsource, you know, my billing and my payroll? Because really, they are extremely administrative cost ineffective use of your people internally.
Matt Kaplan, VSA And the other thing is you get a higher level employee for for for less cost. Right. So you’re getting access to people that do this every day that do for an industry wide. Right. That are not just in your staffing firm, but they’re doing it in other staffing firms right there. They should be in ASA and hearing direct changes from the government on any changes. So it’s not your team having to worry about that. It’s the outsourced team having to make sure that you’re in compliance. And since they do it every day and they’re part of all the networks, you’re getting the benefit of it.
Beth Griffith (Moderator) Perfect. So question for both of you, not you. You said it exactly right that you need to make sure you have the right vendor. How do you know that you have the right vendor until you get in there and you have a mistake or you find out the hard way that it isn’t the right vendor? Are there some red flags or green flags that you can look to when it comes to kind of vetting these vendors that you’re looking at?
Matt Kaplan, VSA Yes. So I think when you’re especially for payroll, let’s use that as a great starter, Right. You know, when you’re looking for a payroll vendor, Right. You I would ask them staffing specific questions. Right. You know, what’s my turnaround time on a payroll? Right. Can I process same day ACH? Is there an additional fee for same day ACH? Is there additional fee for that for as many batches as I need? Right. A lot of client a lot of customers have clients that have multiple weekend gigs. Right. So on their pay stub. Right. We want to make sure that they have the right work week ending on their pay stub. How do I do that? How do I ensure that that’s compliant? Right. Those things are important when you’re starting to, you know, evaluate a potential vendor. Right. Don’t just go in there and going, okay, well, what’s the cost? What is it going to do? You know? And, you know, and take it by a cost. A dollar for dollar. You have to ensure that they can operate seamlessly with you because then they become more of a deterrent than an actual benefit to you. If they do not understand your model. And we hear that all the time with people who go to, you know, that made a selection do the price versus service. Right. You need someone that’s going to be at your service, that’s going to grow with you and understand your pain points and try to alleviate them while maximizing your growth.
Jerry Grady, UHY And I and I think, you know, one of the things to bet that we’ve always looked at is, you know, if I go out to an outsource company there and I’m I’m putting my data out there, I want to make sure that they have the proper SOX reporting and that SOC reporting is extremely important to make sure that, you know, somebody has come in and looked at them, they’ve looked at how they operate, they’ve looked at what controls they have in place. You know, I know quite a few outsourced groups that we had work with, you know, from a cybersecurity standpoint there there was no way that I would have allowed my clients to go to them because, one, they didn’t have the data certificates they needed to prove that they are doing the right stuff and that their controls in place have been audited by an outside firm. I think those are two really important things that you want to look at too, because if a company’s unwilling to put themselves out there and say, hey, I’m going to go ahead and I’m going to have someone come in here and look at my controls and give me a certificate that says that I am compliant, that might be a red flag for you pretty quickly. And I think the last thing, Matt, that we should expand on also is, is, you know, do they do business in multiple states because there are many outsourced payroll groups that, you know, say they do business in multiple states. But the problem is, you know, they don’t have the experts that understand that. Are they are they keeping track of and looking at the multistate rules, as Matt knows? You know, and I’ve had to inform him many times, you know, a state would change overnight. It literally says, you know what, we’re going to we’re going to now add a per person fee. Denver, Colorado added a per person fee, not a billing fee, not a tax fee, but a per person fee that had to be paid every month at $0.50 a person if they were sitting in Denver. Something… How many people would even think of that? So you got to really look at, you know, where you’re doing business and make sure, as Matt said, you know, that that team you’re working with is compliant. They know what’s going on out there and they’re staying ahead of the game so they know what’s about to happen.
Matt Kaplan, VSA And I also think about it, you know, you got to know what your goals are, right? If you don’t know what your goals are. Right. And we can and your outsource vendor is going to align to your goals, right? So if your goal is to is to grow, right, we need to put in a process in place to allow that growth. What I see a lot of times is owners want to grow, but they don’t want to change. Right. But what got you here is not what’s going to get you to where you want to get to. Right. And so those are the things you have to take a real look at to go. If my goal is to double in size. Right. Will this process that I have maintain that growth? I shouldn’t have to change that process. All I should have to do is put more resources against that. Right. But the process itself should be the same from zero to half a million to a billion. I should just have to add people and resources to that process.
Beth Griffith (Moderator) Great. So, Matt, you really touched on something that I want to touch on really fast, and then we’ll trip to some Q&A and get to know you try and say a little bit more, but you’ve mentioned the word growth over and over in the last sentence. Is there an opportunity that a staffing company could outgrow outsourcing?
Matt Kaplan, VSA Yes, right. I think that there is opportunity that you can outgrow some outsourcing, but I don’t think you ever really leave outsourcing itself. Right. You know, there’s many different models, right, in outsourcing PEO. Right. You may outgrow the PEO model. Right. But that doesn’t like Jerry said before, it doesn’t mean that you should take this in-house or all of it in-house. Right. You may want to start tracking your workers comp on your own in you may start wanting to, you know, develop that those metrics, your own suit rates everything. But that doesn’t mean you want to do tax compliance and have to do that. Right. I think tax compliance is something that I don’t think there are many, especially in staffing. There are many payroll people out there that understand the complexity when it comes to tax compliance. It’s something I feel that no one will outgrow, no matter who you are, no matter what company you are. Right as big as you are. If you look at Google, right, they’re outsourcing their their tax compliance, Right? They do not have a team of 400 individual tax people following their taxes. Right. Because it’s so complex and because it’s changing and because it’s not their business model. Right. It’s not what they went out to try to do. So, you know, yes, I feel like you can outgrow some aspects of of outsourcing and what you’re outsourcing, but you should never outgrow some aspects of that. Right. And you should really take a hard look of that and see what you could take in-house and what you can’t take in house. But there are times, yes, you will outgrow a PEO model, but not to outgrow the people, if that makes sense.
Beth Griffith (Moderator) Yeah. Yeah, that makes sense. Jerry, do you have anything to weigh in on that?
Jerry Grady, UHY No, I think Matt really sum that up because, you know, outsourcing is… and Everyone thinks you’re going to outgrow outsourcing at one time. And Matt brings up the best point of all is that there’s that compliance issue from a tax standpoint. State taxes are something that no one’s ever going to outgrow, unfortunately, and it’s always going to be there. And, you know, if you want to grow and you have a payroll person or an air billing person and you want to grow rapidly, I have seen it over and over again with the outsourced model, they are able to grow twice as fast and maintain control of their cost, and so their profitability actually can go up by working with a good, strong outsource partner.
Beth Griffith (Moderator) Great, great information, you guys. I’m going to go ahead and turn it over to the audience here. If you have any questions, please go ahead and post them in here. We’ll do our best to get them answered for you. And then anything that we don’t get answered, we’ll make sure that Jerry or Matt reach out to you and handle those questions with you. Don’t forget, we do have that cool giveaway. So if you guys have any questions, go ahead and pop them in the chat. We’ll give everybody a minute there and and then we’ll get to know Matt and Jerry a little bit more as far as you and BSA goes. So I do have one question here. I want to get a little more granular with PTO and sick time or the pay stub law. Those were mentioned a little bit earlier. Can you guys talk about those a little bit?
Matt Kaplan, VSA Definitely. So with what pay stub law, right. It is. It’s up to every state. Right. And so making sure that your ATX or your vendor is compliant is very important, right? California, I was using time as a good example, right. California requires that that all three buckets of sick time are on your pay stub. So your accrued time, your use time and your available time need to be on the pay stub when it comes to sick time in California. Right. But in New York, it’s not the same. Just your available time needs to be on the pay stub. Right. So if you’re doing business in both states, you need to make sure that you are compliant on that. Right. Some vendors and that is that leaves it up to you to do right when you outsource to a PEO or to a third party. Right. It’s on them to make sure that you are compliant. Right. Because ultimately it’s their software. So there are some benefits of doing that and that’s ever changing. We look at the Pay Disparity Act that just came into in in Illinois and New Jersey. Right. And there are laws coming with that and reporting every day that are change in new hire reporting needs to be done in states. Right. Who’s doing this for you? Is this an internal resource? Right. They are doing five other things. Or are you outsourcing this same thing for claim management? I think is one of those things that I think can be outsourced. Right. And I wouldn’t be doing it yourself. ARBS Before unemployment and worker’s comp. Right. You don’t have the bandwidth internally to fight these claims and make sure and follow up with the the candidates. Let someone else do it on your behalf. Right. That’s a huge cost saver to you. And you think of it, maybe you’re paying it cost. Right. But if that if that person is successful and keeps your ultimate costs down, your benefit, you’re you’re going to get an ROI year over year over year.
Jerry Grady, UHY And I think, you know, and I think that, you know, the biggest, biggest thing I would also recommend to people is from a granular standpoint is do not be afraid to be part of the ACA. You know, the American Staffing Association is constantly on top of these issues. You know, Matt mentioned pay transparency. You know, New Jersey had just implemented theirs, as we all know. Illinois had it. Now they’re revamping it again. It’s being re change. California has it. And, you know, it’s already in talks in Michigan. It’s in talk in Seattle, in Washington area, Utah. So all these states are starting to look at this and say, okay, how do we make it almost impossible for a staffing firm to be a staffing firm? And, you know, from a granular level, that’s a lot to do. And that’s where the outsourcing can come into play and really help you. And the ACA keeps it on, keeps you on tab on what’s going on. And I think it’s important that you understand that.
Beth Griffith (Moderator) Perfect. Well, let’s do a quick overview of Visa and why really quick. And then I have one or two more questions that I want to pop back to. Vensure Staffing Alliance is really a division of Vensure, which at our core we are a technology, we are a people company. But when we look at the staffing world and we look at the staffing industry as a whole, there really was a notice that you guys are different. There’s there’s a lot of interest intricacies that you guys have. You guys are unique and we wanted to make sure that we were serving that public as well. So we customized business solutions specifically for staffing industry that comes from payroll h.r. Employee benefits, worker’s comp, eoa solutions, global back office outsourcing, which matt has been incredibly helpful with in our industry. We were born bsa was born from the realization that staffing companies are just different. So at our core, vr is 100% people and technology focused right now is a provider Vensure, serves 1 million worksite employees and runs about $38 billion in payroll. So we’re widespread across the country. As you can see, we’ve got 60 division partners. But our our real heart and soul and I’m very lucky to be able to work with both Matt and Brian on the BSA side of things is making sure that BSA stands up and supports the staffing side of things. Matt, Do you want to go ahead and add anything to that?
Matt Kaplan, VSA Yeah. Beth What I would say is, you know, I’ve been hearing a lot, you know, we’re not you know, some people say we’re a tech company or a tech company, but really what I think we are is a custom solutions company. Right. We I love how you said that before, because we build custom solutions for our clients, whether you’re in staffing, not in staffing. Right. We’re not going to put you in a mold and say, Here, fit in this box, right? We’re going to build a custom solution that best supports your business, whether that’s outsourcing the entire back office, just a portion of the back office, whether that’s just payroll, whether that’s ACL, PTO benefits, worker’s comp, right. We’re going to build a custom solution that fits your business and not try to fit you into one of the things that we have.
Beth Griffith (Moderator) Perfect. I love it. Jerry, you have shed so much light on so many different things. I’ve got to tell you, I’m walking away educated for sure. But tell us a little bit about why and what it is that you guys do.
Jerry Grady, UHY Yeah. So UHY has been around for a little more than 55 years. We have about 1,800 professionals across the country. We have 36 U.S. offices. Currently. We have about 220 staffing firms that we work on with pretty much on a daily basis. You know, our goal is, is that, yes, we are a CPA firm and, you know, we do that typical compliance tax work and the typical compliance audit and reviews. But what we really are is we’re very proactive with our clients. You know, we do a lot of cybersecurity work, we do a lot of M&A work. We buy and sell staffing firms For many of our staffing clients, we’re as you see, we’re involved in just about every single association that we’re extremely active in where we’re very knowledge based. We work to make sure that we understand the industry, just like an outsource provider, should be understanding what they’re doing. We drive very deep into the industry and so our 50 plus people that work specifically in this industry practice, they could run a staffing firm. They have learned it, lived it, breathe it every single day. And their whole goal is to make sure that, you know, we’re preserving the wealth of the company, but more importantly, is helping that client grow so that they one day can enjoy an exit if that’s what they choose.
Beth Griffith (Moderator) They love it. I love that everybody’s looking for the exit strategy at the end of the day. Right. So we’re going to go ahead and throw one more pull up here. Robin, I do see your question, so I’m going to go ahead and make sure that we get that answered for you. One more question up here. If you would like to learn about Vensure Staffing Alliance (VSA), make sure you’re stopping by staffing world. Jerry, you mentioned ASA a little bit earlier. Their big event is coming up in Charlotte here in a couple of weeks. Matt, Brian Urso and myself will be there at booth 801. So make sure you’re stopping by. But if you want to go ahead, please answer this question for us and we will reach out to our winners and we will also reach out and get these last couple questions handled. Thank you all so much for taking the time to join us today. Matt, Jerry, incredible insight. Thank you for letting me be a part of this conversation.
Jerry Grady, UHY Thank you. Do you want me to answer those last two questions I have? Because I can do that real quick.
Matt Kaplan, VSA Yes.
Beth Griffith (Moderator) Real fast.
Jerry Grady, UHY Yup. Yup. So, Michael Mann was a difficult individual that did not deserve to be alive. So, Renee, at the end of the day, what he did not do is the red flags we already talked about. He did not have a psych report. He did not have an audit, which is what is required of every CEO across the country that they have to be audited every month to prove that their payroll taxes are being made. When you have a fiduciary responsibility to your client, you got to make sure that the company backing it is a strong company. So that’s the first thing you do. And always make sure you get the balance sheet and the audit report for anybody you’re working with. It is an outsourced. Gary Murphy, when you’re building your burden, what you really want to do is make sure you are adding rent, you’re adding payroll taxes. You know, you’re looking at that internal payroll. Nobody puts that internal payroll inside their burden. I can’t tell you how many times a recruiter and a salesperson there. Their costs are not in the burden. That’s part of the burden. State income taxes. Local income taxes. That’s a cost of doing business. And you really want to add that to your burden as you’re building up, you know, your model to come up with how your salespeople can sell and what they’re allowed to sell it at. Hopefully that was quick and fast. Matt.
Matt Kaplan, VSA Corporate allocation, right? There should be some kind of corporate allocation in every burden calculation, right? And that’s the most messed. You need to be sure that you have some kind of corporate allocation, whether that’s to 5%. You know, it’s really dependent on your overhead, but you have to ensure some kind of cost is being captured.
Beth Griffith (Moderator) Perfect. Well, thank you, guys. Again, if you have any questions, will pass these questions on, they can reach out and further answer those for you. But thank you again, everybody. Have a great weekend.
Jerry Grady, UHY Thank you.
Beth Griffith (Moderator) Bye.