Topic: FINANCE & OPERATIONS

Understanding how to analyze a PEO’s financials is beneficial for scaling and maximizing profit. Formal due diligence on potential acquisitions within the PEO space should always begin with a financial analysis. 

In the business world, companies and individuals use goal-setting methodologies to achieve the core mission, objectives, and key metrics. Many achieve this with the use of key performance indicators (KPIs).

Following industry best practices is a step in the right direction to help drive profitability. 

All PEOs start somewhere and create systems that work for them. Eventually, if the goal is to grow, scalable systems and operations need to be in place to sustain the PEO’s growth, along with the right people who can manage and execute these operations. Scaling can create many benefits for the PEO: ongoing client satisfaction, a great employee experience for team members, hitting growth targets, and ensuring profitability over the long-term. This is hard work, and it’s not for the faint of heart. Therefore, I hope to put together a practical guide to give you a roadmap for scalability.

Last year, a brand-new client learned a difficult but important lesson about the value of the PEO partnership. The client was a tech start-up in an aggressive growth mode. The owners were hiring remote workers in multiple states, including employee-friendly states, without anyone with HR expertise to guide them. The PEO model was attractive to them because they knew they were not able to grow quickly while keeping up with HR and payroll compliance. However, right after the client signed the PEO agreement, it terminated an employee based in California without reaching out to us. It turns out that the terminated employee was more versed in California law than the client. Eight days later, the client called us in a panic. 

As the needs of clients evolve and change over time, it is important for PEOs to offer solutions that meet those needs. Sounds simple, right? We have all seen clients that initially onboarded with 10 employees that now have 200 employees and just hired a new CFO and HR director. Their needs have obviously changed.

The new year is a time to reflect on the past, plan for the upcoming year, and set goals and determine how to achieve them. At this time, all PEO departments should have processes to address these initiatives. Financially, among other things, budgets will be created, forecasts reworked, and tax rates reviewed and updated. The sales team will be assessing its pipeline, addressing what strategies did or did not work in the past year, and evaluating potential selling channels. Marketing might be updating social media accounts and finding new ways to create a buzz. But what areas should PEOs address operationally? The choices are limitless, but there are a few key operational areas that should be at the forefront for annual assessment.