Selling your recruitment agency can be a lucrative way to cash in on your success as a staffing firm owner. Staffing is a hot industry overall as a low risk, high competition field with a steady industry growth rate of around 3-4% per year. There is high demand from strategic buyers, especially if you specialize in IT or healthcare staffing, which are growing at double digit rates.
Deciding when to sell your business is a complicated question with many personal and market factors to consider, sometimes over a long period of time. To that end, we have put together some tips on what to do when you want to sell your staffing agency.
How to calculate the value of your recruitment business: What are you are worth?
Buyers are looking for staffing firms to enter a certain geographic market, fill out service offerings, or acquire new customers. The first step to selling your business is to calculate what you are worth to a potential buyer. The important factors to consider are growth, annual sales, and gross profit margin, and EBITDA, typically in the last 12 months. Another huge factor is evaluating your location and market. It will likely take much negotiation before you come to your earnings base, which is then multiplied out to calculate a purchase price.
Sometimes working with someone on the outside is valuable when evaluating your business. While we are not a broker, we have helped several clients navigate the valuation process. Staffing firm owner Sabrina P. wanted to sell her business but wasn’t sure how to start.
“We talked about selling our business for years but didn’t know how to put a plan together. Once we were ready to sell, Advance helped us with a valuation and broke down what went into that number. We felt confident we understood the value of our business and met with a broker who assisted us with the actual sale of our business.”
Set yourself up for success.
You want to sell your business at exactly the right time because buyers are most interested when the outlook of your business is the brightest. This takes some planning, so it helps to make the necessary moves 3-5 years ahead of time. Here are some of the things to concentrate on while planning an acquisition:
Hitting on all cylinders
Buyers are most interested in staffing firms that are outperforming the market with higher profit margins and diversified solutions. Stepping back and taking a hard look at your business through a SWOT analysis or other tools will help you see where you are lacking and what to improve.
Spreading customers over different industries
Customer concentration is a risk for buyers, so one thing to focus on is looking at the industries of your customers and if needed, spreading your base across different industries.
Avoid too much perm placement, focus on temporary employees
If more than 10% of your revenue is coming from long-term placement, it could have a big impact on valuation. Temporary staﬃng, or temp-to-hire, agency revenue is considered a recurring revenue stream while anent positions are not. Focus your job openings on short-term placement, this type of job seeker will add value to your bottom line.
Motivate your internal team
Buyers are looking for continued success, and a huge part of that is the strength of your management and employees. Work with your human resources department to empower your internal team and focus on developing a strong sales team. It’s also recommended that you have non-competes in place for your employees.
Find the right buyer.
When looking for a buyer, you’ll want to work with someone who knows the staﬃng industry. Having multiple buyers involved in the process also will improve your chances for the best possible price. Selling your firm is a long process that can take 6 months to a year, so plan accordingly. If the seller is willing, you will want to strongly consider a structured earn-out component. In essence, this means that if your firm meets certain set performance goals over a designated period of time, you will get incentive-based payments as well as cash paid upon closing.
It’s also important to know what your role and responsibilities will be post-sale and how your buyer intends to operate the business. It’s important for your salespeople to feel comfortable with the process, or you could risk your star performers leaving for another firm with less uncertainty.
Save time and get strategic guidance
If you’re thinking of selling your firm, it’s important to plan ahead and act. Wait and see isn’t the best course of action because life is unpredictable, and it’s not always better around the corner. Advance Partners has a wide range of industry contacts and has helped many clients with strategic guidance on mergers and acquisitions, and chances are we can help you get the conversation started. If you want to discuss options, contact us today to speak with an expert.
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