Every recruitment agency director thinks about the day when they may be able to sell their business and make their millions for all the hard work they have invested in their business. However, when it comes to selling a business there is a lot of preparation work in advance that needs to go into the recruitment agency to ensure that the price matches the expectation.
The value of a recruitment business is often calculated on a multiple of its EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) but the multiple is usually decided by a number of factors.
Here are some considerations that can affect the multiple used to calculate the value of a recruitment agency:-
- The Ratio of Contract and Permanent Placements – If an agency is only making permanent placements then the multiple will be much lower than if the agency is also making contract placements. This is due to the buying agency generating profit on on-going placements after the sale (and with a potential of extensions). Having a good split of contract and permanent placements can make an agency more attractive
- PSL Agreements – If the agency is signed up on exclusive contracts with public or private companies to provide staff on their placements for an extended period of time then these contracts have an ongoing value for the buyers.
- Reliance on the Directors – When a buyer wants to purchase a recruitment agency, the idea is often to not include the current directors and shareholders in the future plans. Therefore, any Director and/or Shareholder should look to remove themselves from making placements, having involvement with clients and have minimal input into the day-to-day running of the company
- Showing Growth on the Balance Sheet and P&L – Ensuring that there is a financial plan in place to hit certain targets on the Profit and Loss each year to increase the EBITDA as well as ensuring that the balance sheet also shows growth is vital to a company sale
- Strong Internal Management Team – As a new buyer does not want the original Directors and Shareholders in the business, it is expected that there is a strong internal management team that are committed to keeping the business ticking along once the purchase has occurred.
TBOS works with its recruitment agency clients to plan for the time when they may decide to sell and has helped a number of clients with their own exit as well as buying other agencies.
Contact TBOS For More Information
At TBOS, we provide effective support for recruitment agencies, including outsourced back-office administration and recruitment finance. To find out more, please call us today on 03456 460402 or book a consultation with one of our experts at a time to suit you.
Image source: Canva