The Reasons People Fail in the Staffing Industry Here are the problems you'll face and how you can successfully overcome them in order for your staffing service to thrive.

This excerpt is part of Entrepreneur.com's Second-Quarter Startup Kit which explores the fundamentals of starting up in a wide range of industries.

In Start Your Own Staffing Service, the staff at Entrepreneur Press and writer Krista Thoren Turner explain how to start and run a successful staffing service. In this edited excerpt, the authors discuss what bumps in the road you might encounter as a staffing service owner and how you can avoid them or remove them so your business is a success.

What are the major reasons people fail in the staffing services industry? Many of the problems listed below are common to all startup businesses but are particularly true for staffing services:

Inadequate financing. It's a problem in any industry, but particularly in this one. Why? In this business, cash is king. You must have your financial house in order to weather periodic storms, and without fail, you must meet payroll.

Inadequate insurance. This is an industry with a lot of potential liability problems. One expensive claim can wipe you out if you're underinsured. Re-evaluate your insurance needs periodically.

Lack of temporary workers. Because the skill and labor of your temporary workers is the major product you sell, this can be a serious problem. Make sure you're constantly recruiting.

Poor customer service. You must satisfy your clients. It's that simple.

Underestimating the time commitment required. As is usually the case with a new business, you have to put in a lot of time getting it off the ground. "Be prepared to put in 80 hours per week starting out," says Dyana Veigele, owner of staffing service Law Dawgs in Seattle. A staffing business demands long hours—something you have to accept from the get-go.

Unsatisfactory workers. If the employees you place are unqualified or unprofessional, your staffing service won't have a good reputation. Make sure you have effective testing and evaluation procedures.

Expect that you'll need to trouble-shoot from time to time. Following are some of the problems you may encounter, along with suggestions for dealing with them.

Client dissatisfaction. If a client indicates dissatisfaction with an employee, many staffing service owners don't charge that client. You may have to use your judgment on this, however, if the client waits longer than the customary four hours before notifying your service. Whatever you decide, you must pay the employee.

No-show employee. You might give no-shows one strike before crossing them off your employee list—unless they have a good, documented reason for not showing up, such as a trip to the hospital or a family emergency. Under those circumstances, you might give them a second chance.

Employee cancellation. This is annoying and a waste of time for both you and the client. Document the occurrence in the computer each time, and work quickly to find a replacement worker for the client. This is the critical point: Make replacing workers your top priority. Send termination letters to employees who show a pattern of cancellations.

Missing time sheet. Getting employees to turn in their time sheets on schedule can be an ongoing hassle. The simplest solution is to have firm deadlines for handing in time sheets. Employees who miss the deadline don't get paid that week. If you're unable to bring yourself to enforce this type of policy, you can get the employee to phone in the information so the payroll division can cut the check. Do not, however, hand over the check before you have the employee's signed time sheet in your hands.

If a time sheet is lost, then someone in your office should fill out a "missing time sheet report" using the employee's phoned-in information. Verify it with the client, then supply the payroll division with that form as a substitute for the time sheet.

Inaccurate job description. You give out assignments based on the information the client provides, and sometimes that information is inaccurate. Job duties that turn out to be different from what the client stated can end up wasting an employee's time and your money. You can remedy this by filling out a profile of an assignment and faxing or emailing it back to the client for verification. Employees are justified in calling your service and asking either for someone to replace them (if the job requirements are substantially less or more than the employee is capable of) or a higher pay rate (if the job requirements are more than stated but the employee has the necessary skills). In the latter case, you'll have to renegotiate with the client company and establish a higher billing rate.

Client unreliability. Clients can be unreliable in several ways. They can give you problems at billing time by paying late or they can be difficult for employees to work with, either because of the supervisory staff or because of policies or attitudes toward temporary workers. What can you do to minimize these types of problems? Get references on firms you deal with, and get your temporary staff to evaluate the firms you send them to.

Employee steals from the client. Theft is a serious problem, but this is where your bonding insurance will come in handy.

Employee steals your client list and your temporary employees list. Aside from your personnel themselves, these two lists are probably the most valuable assets of your business. If an employee steals them, fill out a claim with your bonding company. If you can prove the theft, you should also take the employee to court.

Placement that ends sooner than expected. A few hours isn't a crucial difference, but if an employee's assignment ends much earlier than expected, that employee should be put at the top of the list for another assignment. Your ability to keep employees working for the promised length of time will help create a good reputation for your service.

Placement that lasts longer than expected. Under this circumstance, an employee is justified in asking you to find someone else to complete the assignment. After all, employees have schedules and other commitments. If at all possible, the employee should give you a few days' notice to find a qualified replacement.

Employee hates the job. This will happen occasionally. When you receive a "Please get me out of here" call, ask the employee to stay at the assignment until you can find a replacement. Then do so as quickly as possible.