Staffing Agency Due Diligence Checklist for Buyers
A staffing agency’s financial statements show what it billed and what it paid, but they do not show whether its largest client will stay, whether its workers were classified and paid correctly, or whether a payroll tax notice is waiting to arrive. Staffing agency due diligence is where a buyer tests the seller’s story against records, contracts and filings. Because staffing carries employer obligations for every worker on assignment, the review goes well beyond the profit and loss statement.
This checklist is general information for buyers of existing, operating staffing agencies. Requirements vary by state and by type of staffing. Buyers should work with qualified attorneys, accountants, tax advisors and insurance professionals, and nothing here is legal, tax or insurance advice.
Financial Records
- Several years of tax returns and financial statements that reconcile with each other
- Revenue and gross profit by client, segment and type of placement
- Payroll registers reconciled to the general ledger and bank statements
- Support for any owner add-backs or one-time expenses
- A complete schedule of existing debt, including any receivables-based arrangements
Receivables and Payroll Funding
- Receivables aging by client, with disputed or unbilled amounts identified
- Collection history and any write-offs
- Agreements under which receivables are sold, pledged or financed, including notice, consent and termination terms
Our article on staffing agency payroll funding explains why this area deserves close attention.
Payroll Taxes, Unemployment Insurance and Workers’ Compensation
- Federal and state payroll tax filings and evidence of deposits
- State unemployment accounts and any notices received
- Workers’ compensation policies, premium audits and claims history
- Any open audits, assessments or payment plans
See our article on staffing agency payroll taxes and insurance.
Employment Compliance and Licensing
- How workers are classified, and how any independent contractors are engaged
- Overtime, timekeeping and pay practices
- Employment eligibility verification procedures
- Pending or past claims, charges or agency inquiries
- State licenses or registrations held, if required, and whether they can transfer
Our article on staffing agency employment compliance covers these issues. Findings should be reviewed with employment counsel.
Clients and Contracts
- Billings and gross profit for each significant client over several years
- Master service agreements, rate schedules and amendments
- Assignment, change-of-control, termination and indemnification terms
- Insurance requirements imposed by clients
- Whether clients route orders through a third-party vendor management program
See our article on staffing agency client concentration.
Recruiters and Internal Staff
- Organization chart, roles and tenure
- Compensation and commission plans
- Which staff manage which clients and fill which orders
- Non-solicitation, confidentiality and similar agreements, to be reviewed with counsel
Our guide to staffing agency recruiter retention explains why this matters.
Systems, Data and Facilities
- Applicant tracking, payroll and billing systems and whether licenses transfer
- Candidate and worker databases and how personal data is protected
- Office leases and whether they can be assigned
Insurance and Claims
- General liability, employment practices and other policies the agency carries
- Client contract requirements compared with actual coverage
- Open claims, demand letters and litigation, with counsel’s assessment
Putting the Findings to Use
Diligence findings can shape the price, the structure, the purchase agreement’s protections and the financing. Issues discovered early can sometimes be resolved before closing; issues discovered late may delay or end a transaction. Lenders will frequently request many of the same records, so organizing them once can help both the purchase and the loan review.
US Professional Funding helps buyers finance the acquisition of existing, operating staffing agencies once diligence supports the transaction. Learn more about our staffing agency acquisition financing.
