When a person plans to start their own recruitment agency they will often consider their exit plan too. Whether they’re looking to grow to a large size quickly, organically develop over a long period of time, to sell externally or as an internal Management Buy-Out, the Directors still need to follow the same principles to ensure that when it’s time to sell they can get the best price.
By not continuously reviewing and updating your exit strategy you can harm the agency’s value and, in turn, the return your shareholders will receive.
Below are six things Directors should review when calculating the sale value of their recruitment agency:-
- ANALYSE YOUR CONTRACTOR BASE AND PSL VALUES
A potential buyer will look at future income first and foremost. An agency with a large contract base on secure contracts with lengthy end dates will be much more attractive than an agency with only permanent placements. PSL agreements can also strengthen the value of an agency especially if they are for a long period of time. However, temporary placements on a rolling contract base doesn’t necessarily increase your value as these could end at any time.
- REVIEW YOUR INTERNAL MANAGEMENT STRUCTURE
A potential buyer will want to ensure they retain staff in place to ensure continuity of management. Having a strong management and team structure that does not rely on the director/s on a daily basis to make placements adds value to an agency. Potential buyers often have other business interests in place and may not be available at all times to manage the company so having someone in place is very attractive.
- MAKE SURE YOUR COMPANY ACCOUNTS SHOW GROWTH AND INVESTMENT
A potential buyer often bases their first impression of an agency’s value from the company’s accounts. This can easily be pulled from Companies House so it needs to give a good reflection of the company’s activities and value. The best way to do this is to ensure the company shows growth over a 2-3 year period on turnover, profitability and retained profit. By discussing this with your accountant and putting achievable plans in place this can be reflected in the accounts to help attract a potential buyer.
- REMOVE YOURSELF FROM THE EQUATION
When anyone buys a recruitment agency they are buying the company, not the owner, so the company practices and profitability need to reflect this. If the relationships with clients, the daily management of the staff and the overall running of the business rely on the directors this will not be attractive. Ensuring that clients are signed to and have relationships with multiple staff within the agency will help to ensure that when the directors depart the business has continuity.
- REVIEW YOUR “ADD BACKS” AND LOSSES
When the agency’s books are looked over by an accountant as part of due diligence they will be checking what potential costs will be added back to increase profits but also to see what losses may reduce value. Directors’ salaries and benefits are an easy add back but bad debts and external loans and credit agreements can be viewed as losses. Reviewing these prior to preparing for sale shows you the ‘true’ value of your business so you won’t be disappointed once the due diligence is completed and the value is reduced.
- START DOING SOME FINANCIAL PR
In order to attract the right buyer to your agency you should be reviewing how your business is seen in the market place. Promoting some news stories, articles and going for industry awards to get your agency seen in recruitment magazines and blogging sites means that when your agency goes on the market it is recognisable as a potential market leader and a good investment.
As part of the services provided by TBOS, we regularly advise and help our agencies to review their company value and discuss ways to improve this. Many of the agencies managed by TBOS have an end goal of selling within a number of years and by putting effective plans in place to achieve their target value they can do this.
TBOS has also helped a number of its clients over the years to review and purchase contractor books and recruitment agencies by reviewing potential companies’ books and performing due diligence to ensure the purchase was viable.
For more information on how TBOS can advise you on reviewing your recruitment company value and purchasing a new agency then contact our office.