Many recruitment directors aspire to one day sell their business for a healthy profit, but unfortunately, the reality is that many will fall short. The main reason for this is the lack of planning that a recruitment agency should undertake in advance of wanting to sell. When recruitment agency directors start to think about selling their business, they should take the time to implement some necessary changes within their company to make it more attractive to buyers and, as a result, achieve the sales value they are aiming for.
There are many factors that need to be considered to get the right multiple and value for a recruitment business, and some of these need to be demonstrated over several years, so it is important to plan these early.
Here are some things you should consider when you decide you may be looking to sell your recruitment agency:
COMPANY FINANCIAL POSITION SHOWING AN UPWARD TREND
The appeal for any potential buyer is that the company accounts not only show an increase in turnover and profitability but also an increase in the balance sheet position. This is best demonstrated over a 3–4-year period plus a realistic forecast of the 12 months ahead. If the company books are currently showing large fluctuations in these numbers, then it is advisable to revise this position over the next few years.
RETAINED PROFITS WITHIN THE COMPANY TO EASE CASH FLOW
If the company balance sheet is increasing year-on-year, then this can be easily helped by retaining profits within the company. The knock-on effect is that there will be less pressure on the company’s cash flow, which in turn will make the company more attractive to potential buyers.
DRAMATICALLY REDUCE THE RELIANCE ON DIRECTORS AND SHAREHOLDERS
If a director or Shareholder is a main component within a recruitment agency, such as being a main biller, has relationships with the main clients or manages a team, then this can have a detrimental effect on a company’s value as a new owner may not want them to continue within the business once they purchase it. Reducing and extracting the Directors from these responsibilities is key to a successful sale.
BRINGING KEY STAFF MEMBERS INTO THE FOLD
When a potential buyer wants to purchase a company, they want to be sure that the day the transaction goes through, the business will keep on going. As the original Directors and Shareholders may not continue in the business, it is important that the valued staff members are happy to stay and continue to work for the new owners, so having them aware of the possibility of a sale is crucial. This may include incentivising them with bonuses and/or share schemes to emphasise the value they bring to the business.
LOOK AT ANY POTENTIAL ADD-BACKS OR ADJUSTMENTS TO VALUE
When calculating the value of a business, there will be items within the company accounts that may not be there once a new owner takes over, such as the salary of a director and any benefits they enjoy (such as company cars, pensions, etc.) which can increase the business value. This can also work the other way if there are bad debts or liability risks, which can reduce the company’s value. Analysing these potential add-backs and adjustments can mean there are no surprises during the due diligence process.
PREPARING THE INFORMATION FOR THE BUYER’S PACK
For potential buyers to gauge whether they want to purchase a business, they will require large amounts of financial information that needs to be provided quickly. Preparing and collating the company’s financial information and keeping it updated is key to ensuring that the due diligence process goes smoothly.
START SOME FINANCIAL PR
To attract potential buyers, it can be a good idea to look at making the business visible to a larger audience. This may include increasing marketing and social media presence, entering industry awards and starting to identify potential companies or individuals who may be interested in purchasing the business.
Mayachi Ltd has a wealth of experience in helping recruitment agencies with the sale of their business, including the planning stages, the ongoing work to maintain and increase the company value and the due diligence process during the sale process. Mayachi Ltd has also helped agencies with the purchase of other recruitment businesses and contract books, including advising on the financial mechanism to buy the company and the integration within the existing structure.
