Many recruitment business owners have an exit strategy which will one day involve them selling their business to the highest bidder for the best possible price.
There are many factors that will impact on that eventual price but some of these can be planned for in advance. Below is a list of some of the key elements that should be taken into account to maximise the value of a recruitment business.
HAVE A GOOD MIX OF PERMANENT AND CONTRACT/TEMP REVENUE
The value of a ‘permanent only’ agency is a lot less than an agency that has a good contract or temp book. This is true even if it produces the same net profit as a mixed agency. The reason for this is that the buyer of a contract/temp agency will be able to rely on some forward contracted income (and the associated cashflow) after the purchase, whereas the permanent only agency is often only as good as its last month’s placement.
VARIED CUSTOMER BASE
It’s always advisable for any recruitment agency to have a varied number of clients and to spread the number of placements across those clients. Having a concentration of placements with too few clients increases the risk for the prospective buyer and therefore will reduce the valuation.
AVOID ALL ‘SALES EGGS IN ONE BASKET’
Building up a recruitment business which relies on a very small number of sales consultants will greatly reduce the value of the business. Any prospective buyer will be put off by the risk that the consultant(s) leaving may reduce the future profitability of the business.
STRONG INTERNAL MANAGEMENT TEAM
When a buyer looks to purchase a recruitment agency they want to know that the staff they are taking on board can perform well. Maintaining the existing client relationships and continuing to manage the day-to-day running of the business after the previous owners have gone is extremely desirable. This will mean they can avoid bringing in expensive managers and keep costs down.
MARKET SECTOR EXPERTISE
A recruitment agency that has a good level of expertise in a particular market sector (or a number of sectors) will be more attractive to a potential buyer (and attract a higher value) than a ‘jack of all trades’ type agency.
RISING PROFITABILITY GRAPH
If your business can demonstrate increasing profitability over the medium term it will be usually be valued at a higher rate than a business that has a flat profit history. Along with an increasing net profit, a consistent gross profit margin on any contractor or temporary base will also increase your business value.
ESTABLISH SOLID SYSTEMS AND PROCESSES
When a prospective buyer looks at a business that has solid systems and procedures in place it greatly increases their confidence in the business and boosts its value.
As the economic environment continues to improve over the next few years there is an ideal opportunity for existing recruitment owners to sell their businesses for the right price.
As part of our back office and accounts solution TBOS provide our recruitment agency clients advice on how to grow and develop their agencies to further increase their value. Over the past few years we have also advised and assisted a number of our clients on acquiring other agencies and planning their exit strategy.