Staffing Industry Spotlight: Rosa Padilla, CPA

Staffing Industry Spotlight is an interview series featuring leaders shaping the staffing industry, sponsored by Ascen, a leading back-office and employer-of-record for staffing agencies. This session features Rosa Padilla, CPA and CEO of RLP, CPA LLC., who brings over 24 years of dedicated experience to the staffing sector.

Rosa shares her expert perspective on the critical role of specialized accounting, explaining how back-office complexities—from cash flow management to tax compliance—intensify when firms transition from permanent placement to contract staffing. The conversation covers essential strategies for maintaining financial health, the necessity of accrual accounting for long-term valuation, and how industry-specific knowledge can uncover hidden savings in areas like workers' compensation and sales tax.

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Francis Larson:

Rosa, thank you so much for being on the Staffing Industry Spotlight. The first thing we'd like to know is who you are and what you do.

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Rosa Padilla:

I am Rosa Padilla. I am a CPA located in New Jersey. I am the CEO and owner of RLP, CPA LLC. We support staffing companies on a day-to-day basis, and exclusively for staffing. I have been in the staffing industry since 2000. So, twenty-six years minus a year and a half spent in the auto industry. Staffing just always called my name. When I did try to change it up a bit, it called me back in. I have been in the staffing industry for 24 years and in management since 2004. I know this industry very well.

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Francis Larson:

It makes sense to me because your name comes up all the time. At conferences and events, anytime accounting comes up, you actually come up a lot.

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Rosa Padilla:

I love that. I hope it is always good. I love what I do.

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Francis Larson:

I am curious. You said you were in the auto industry, moved to staffing, and then eventually set up your own firm. What made you decide to set up your own accounting firm and focus on helping companies like this?

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Rosa Padilla:

I cannot take credit for it as much as I would love to. It was actually the vision of the first staffing owner that I worked for in 2000, Ken Thorne. I say he is my "work dad." I have been in management for years for a staffing company. I started my first managerial position with a publicly traded staffing company located here in New Jersey. I obtained my CPA in 2016 while I was a controller at Co-Work Staffing.

Obtaining my CPA was not a professional need because I was doing very well without it. However, I always envisioned being my own boss someday. I did not know what that would be, but I knew I did not want to work for someone for the rest of my life. I also know that I am not a salesperson. I am an accountant. I may have a personality that some people say is not typical for an accountant because I am very outgoing. However, I felt that having those three initials behind my name gave me credibility. I did not want to go out there and say, "This is my background and experience, and this is why you should work with me." That also plays a part, but being a CPA does help.

I obtained it in 2016. In 2018, Ken Thorne approached me and suggested that I go out and consult for the industry. At the time, I was working a full-time job, getting paid well, and was a controller. Things were good. But I respect him so much. He is extremely intelligent, so when Ken suggested I leave my full-time job, take a leap of faith, and start consulting for the industry, I thought, "Why not? Ken said I could do this." So I did. He introduced me to my first client. By the end of that year, I had three staffing companies I was servicing on my own. In 2019, I opened up my office, made my first hire, and here we are today. Seven years later, we are servicing about 25 staffing companies.

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Francis Larson:

Taking the leap like that is so cool. You are working with staffing companies, doing mostly accounting work. How is that different than working with other types of companies in another industry? What have you found specific about staffing companies that is interesting or what issues come up?

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Rosa Padilla:

As a business owner, if you can bring value to a company, you should focus on that. For me, it really was staffing. It was no other industry. I know it in and out. I feel like I have been raised in this industry. I am not a salesperson, a recruiter, or a branch manager, but I know and understand what they do. What they do ultimately is reflected in the numbers.

To properly report results, you have to understand the beginning to the end. That means knowing what the front office processes are, what the technology is, and how that information is then transferred or integrated with accounting. At the end of the day, what are the reports telling me? The financials tell you a story. It either tells you there is something broken in a process, because management says margins should be X, but my financials say something different. When that happens, you have to question what is happening. What I found in this journey of RLP working with staffing owners is that they get financials prepared by either internal staff, an outsourced CPA firm, or a bookkeeper. It is all over the place in terms of where they are getting their information from.

Owners know their numbers; it is in their heads. They do not have to be accountants, but they know their business. When receiving the financials, they sometimes know something is broken but do not know what it is. Quite frankly, they do not have the time to go back and say, "You did something wrong," because they cannot articulate what is wrong. Their gut is telling them that there is something wrong. I tell staffing owners that if you truly believe that there is something wrong, most likely there is. Understanding our industry is key for whoever is preparing your financials. You must understand the industry inside and out to properly advise on what changes need to be made and where the breakdown is. I believe that many staffing owners struggle to find the right partner and to get financials that accurately represent their business.

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Francis Larson:

It is so interesting because staffing, on its face, seems really simple. You have a pay rate, a bill rate, a client, people, and taxes. It seems simple, but you talk to accountants who are used to software, like SaaS, and they do not get it. It takes so long for them to understand just one company's financials if they are not used to this space.

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Rosa Padilla:

Absolutely. When I first started, I had a beer distributor and an HVAC company, but most of my clients were in staffing. What I realized shortly was, why am I doing this? It is so time-consuming for me to understand their system and internal processes that I cannot explain their financials. I can do it, but why am I wasting my time when staffing comes so naturally to me? Let me just stick with staffing. Eventually, I have had colleagues refer us to other companies outside of our industry, and I just won’t service them. As much as I want to help everyone, I can’t.

You're right, there is almost a myth that starting a staffing company is so easy. If you are doing permanent placement, sure. You are recruiting, billing a percentage of their salary, and collecting that money. Done. No complexity. But many people find that eventually, contract help is needed. Now you fall into this temporary contract placement area. Because you were most likely a salesperson before becoming an owner of a staffing company, the complexity of the back office is often overlooked. It is important for cash flow because you now have to pay not only payroll but also taxes. Then your receivables are, if you are lucky, 30 days or less. Often, it is between 30 and 90 days. Cash flow, requirements, and compliance around taxes, workers' comp, and unemployment come with paying people.

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Francis Larson:

When we started in this industry years ago, the accountants and bookkeepers we worked with would not understand the financing component of staffing. It seems simple, but it was just tough for accountants to wrap their heads around. We pay payroll every week and burdens every week, and then the client is going to pay 30 or 60 days later. There are a lot of moving parts and money going around, so reconciliation is a little bit harder. When you start working with a company, what are the key problems you identify right away?

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Rosa Padilla:

That revenue equals cash flow, or that revenue equals profitability. Sadly, I come across companies that are doing twenty million in revenue, but their margins and profits are not even enough to cover their overhead.

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Francis Larson:

Is this because they are doing cash accounting and they don't get it? They aren't even doing accrual?

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Rosa Padilla:

Oh my god. As far as cash versus accrual, so many small- to mid-sized companies run their business on cash. They do not even know what their burdens are. Or their chart of accounts is not structured correctly, so they have revenue, and their profit is the revenue because COGS is not set up properly. The things I see are sad. It is deceiving to the owner not to have financials to tell them a story to make decisions on or to understand why they are struggling with cash flow. I even see some staffing owners, because of cash flow restrictions, not paying their taxes to the IRS on time.

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Francis Larson:

Oh no, that is the worst one.

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Rosa Padilla:

That is the worst one. But they think that is okay and that they will just worry about the interest and penalties later. It is a big mistake. Again, I think what we are doing today, and what I would eventually like to do, is really start educating staffing owners on how important accrued financials are. Even if you are not thinking about selling or exiting today, you will have to at some point. If your financials are not clean and well-structured, they will lowball you. You are going to get, if you are lucky, a one- or two-multiplier. They might just say they will buy your client base or your assets. They will negotiate you down because the minute they look at your financials, they will know how financially healthy you are. Financials tell a story not just to me as an accountant, but also to an investor or a company potentially acquiring your company. They can look at your financials and immediately see some issues. So they have the upper hand over you.

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Francis Larson:

That is such a good point. For us, it took 18 months after bringing in some serious accountants to really turn around the accounting. It is really hard. How long do you see it taking companies whose chart of accounts is messed up to get them into shape?

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Rosa Padilla:

I would say at least three months. We do it pretty fast because we know the technologies in our space, the processes, and how things should flow. After seven years of cleaning up books, we can identify where the problem is and then get them caught up. We do the reconciliation, create the processes, and work with the internal team. That is another thing I think is key. Whether you are in a managerial position or any role in a company, if you come in new, you cannot assume you know everything. I never assume I know everything, but I also don't assume anything. I have to work not only with the company's owners but also with their staff. I need to understand why they are doing what they are doing.

When you take that approach of understanding them, you build a relationship and trust, rather than just telling them what they are doing wrong. A great leader goes in and says, "Let me understand you and what you do," then comes in with recommendations and works with them to improve it. Now you've built a relationship, and it's easier to get things done. You have them helping you to correct it. There are things we can do on this side to facilitate reconciliation, which allows you to see potential breakdowns in the process and why certain things are not in those accounts. We review insurance policies and lease agreements to ensure accounting is properly recorded in accordance with GAAP and accruals. Unemployment and workers' comp—how is that managed? Depending on the staffing vertical you are in, if you are not managing those two components, they will eat up your margins so quickly.

As companies grow and they do not have the right staff or experts behind them, they are unfortunately going to feel the pain at some point. Because you know the space, you know what is missing when you look at financials. You know to ask why the workers' comp is so low or where it is. Another accountant might not even notice. You can know what it should look like.

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Rosa Padilla:

Exactly. And then there are certain coverage structures around workers' comp, whether you are in a captive, on installment payments, or on a pay-as-you-go basis. There is so much in our space that is unique to us. Depending on what policy you have, the accounting around it is different. Making sure that we have that correct and that your margins are accurate is vital. If you have these fluctuations in your margins, it means something on the accounting side is off.

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Francis Larson:

Speaking of captives and the liability side on the balance sheet, I bet you see some ridiculous stuff.

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Rosa Padilla:

Oh yeah. Things that have been there for three, four, or five years. Then you ask if this is truly a receivable, and they don't even know what that is. Or liabilities or accruals that were recorded years ago that never washed out. That is another thing around the balance sheet. One item that people love to include on the balance sheet is medical and deduction expenses. They will put the deductions and the payment in the balance sheet and forget about it. That is a P&L impact because there is an employer expense associated with benefits, even if it is minimal. Why not flow the deductions and the payment through to your P&L so you can see your expenses? Then, obviously, if you are looking at trends month over month, you will notice any timing issues or problems. Maybe that will tell you that your HR is not balancing invoices against payroll deductions, and that there is another process you need to implement internally. The P&L and the financials tell you a story. I just love being able to analyze and read the numbers.

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Francis Larson:

Having your financials in order allows you to see the problems happening. If you don't have books in order, you just have a gut sense. At what point should people bring in an accountant for their business? I feel like a lot of staffing founders think they'll worry about accounting when they are at five million plus.

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Rosa Padilla:

I think it's day one. It is almost like an attorney. When you are starting a business, I think the two professionals you need by your side are an accountant and an attorney. Sadly, these two professions sometimes get a bad reputation. Every time you call them, they send a surprise bill or charge too much per hour. They don’t see the value. That is why my logo features two hands: I am a CPA, but I am really your partner. I do not want you to feel like you are overpaying or that you will get a surprise bill.

It is very important for staffing owners early on to engage an accountant who understands their space to properly guide them. There may be things they are not aware of regarding compliance or payroll. If you are just doing perm, I think you are okay early on, but when you start getting into the contract space, you definitely want to make sure you are doing things right and pricing correctly. Understanding your burden is key so that you are not underpricing.

Just having clean books from early on is so important. If you get into a business four years down the road, you are doing fifty million dollars, and now you try to clean up your books, it is so hard to go back and reconcile the past. It is not just changing the chart of accounts. All that history has to be reconciled, or you have to do crazy journal entries to try to reconcile it. It is like a debt that you are accruing, and it becomes very big. It is really not that expensive. People think it is, but you need to have this in your business. You are not a viable business until you know your books. You might even be insolvent and not know.

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Francis Larson:

An EOR like yourself is necessary in our space, especially for startups.

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Rosa Padilla:

There is another value that an EOR brings, but some people in that relationship think, "Oh, it's so easy. I just pay a fee." Depending on the type of agreement, they may also be funded, with money coming in, and they think they don't need to worry about it. But you do. It is technically your reputation on the line between your candidates and your client-facing, and you need to understand the numbers. Sadly, we have some people who are almost like children; things are being handed to them, and everything is good until it is not. Then it's, "Why didn't I know that?" It's because you didn't take the time or build that relationship with the EOR to better understand your books or ask questions.

Whether it is an EOR or factoring on the lending side, you might be getting the money and going out to sell, but you don't understand what you are paying for. You don't understand receivables, chargebacks, accounting, or liability. You just know that everything is being done for you, so you are good to just go out and sell and grow this company. It’s a mistake.

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Francis Larson:

We see this with some of our customers. They think that because they are financed, somehow that means they don't need to keep their books. But you need to keep your books. It doesn't matter what service providers you use. Even if your chart of accounts is very simple and you are not doing lots of different things, you still need to understand your books and keep them clean. With factoring, some of the opacity on fees can stack up. You might think you're paying one percent of your invoices, but actually, you're paying some crazy number of daily fees and charges. You have no idea unless you're having an accountant reconcile your books. You just have no idea what you're actually paying.

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Rosa Padilla:

And that's money you're leaving on the table. A lot of times, you are concerned about the money that you have to pay the accountant, but you are not looking at the money that the accountant can save you. I’ll give you an example from a conversation today. One of my new clients is paying sales tax and expensing it. You should not be expensing sales tax because you should be billing the client. They are in a VMS relationship. The VMS was not billing the facility sales tax, so, in turn, the facility paid the sales tax and took the hit. I thought about it. In a VMS relationship, if there is a sales tax requirement, they will bill and collect that money. The only time they would not do that is if the facility is exempt.

I said we need to question the VMS about why they are not collecting sales tax, because it is most likely a medical facility, and they are exempt. So here they have been paying sales tax. There is a possibility that we can go back to the state and say they are owed this money because this facility is exempt. This is where whoever was managing their books—they had an external CPA firm actually doing the sales tax—didn't look like they should have paid those sales taxes. That is why the VMS was not paying them; the VMS thought the firm knew their job. This CPA firm serves multiple industries, which is great, but it is not in our space. As a CPA firm, I could also do income taxes, but I choose not to. I choose to really focus on what I am best at and what I am an expert at, and for me, it’s staffing. Having someone who really understands your space can help you save money rather than seeing them as too expensive. Accountants and lawyers are going to save you money.

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Francis Larson:

Sales tax and staffing are tough to get right. I bet they looked at the VMS, and the VMS itself was not exempt, but they didn't think about whether the actual client is exempt. The VMS is just a pass-through. Having that knowledge about the industry, knowing there is another player involved who is probably exempt, is so important. Sales tax, in general, in certain states, depends on whether the facility is exempt. Other firms might take six months or a year to even get up to speed, and even then, they are going to get it wrong because it's just so complex.

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Rosa Padilla:

Exactly. Understanding the industry definitely makes a difference.

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Francis Larson:

Final words from you on advice for maybe newer staffing agencies? What are the things that they should look out for in their books and financials right now?

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Rosa Padilla:

If you are struggling with cash, there is something wrong there. If your financials are telling you a different story than what you believe your story to be, you need to question it. As an overall thought process as a staffing owner, really seek great partners out there. They are there for anything you need: funding, EOR, payroll, compliance, HR. There are people out there. I think associations, too, like state associations or ASA, are great. There is a lack of owner involvement. Just really go out and take the time to get the right people by your side.

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Francis Larson:

Great words of advice. I like the idea that if your gut says something different from the books, there is likely a problem, and your accounting needs to be looked at. Rosa, this is amazing content and great advice. Thanks for being on the show!

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Rosa Padilla:

It’s been fun! Thank you.

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