BE PREPARED – MAKING YOUR RECRUITMENT AGENCY SALE-READY
All recruitment company owners could benefit from being in a sale-ready state of alert. That way you avoid letting events determine when you must sell and you are poised should an excellent opportunity arise. There is, after all, no guarantee that there will be a buyer ready and waiting at just the moment you decide to sell. It also means you become accustomed to maintaining that crucial balance between being sale-ready and keeping day to day operations sharp and consistent.
So what steps should you take to put the business in sale-ready mode? At Azuki we recommend taking the following steps:
1. Ensure all directors and shareholders share the same vision
2. Develop an exit plan and address the tactical priorities early on
3. Organise your financial results
4. Develop sound financial projections, and back them up with a picture of strong potential
5. Understand subjective value, and see your recruitment business through the eyes of a potential buyer
6. Initiate a buyer identification and assessment process
7. Once you decide to make the business available for sale, establish a specific sale timeline
How Much Financial Information do I divulge?
These steps hold true whether you are hoping to attract a trade buyer, interested in the company’s operations, or financial buyers (such as private equity) who will be focused on short term rewards. Within the recruitment industry, you are likely to find trade buyers often emerge from the same industry and seek a good fit with your business. Financial buyers on the other hand look for investment opportunities – businesses with solid cash flows, strong management teams, growing markets, a strong place in their market sector and lower capital expenditure requirements.
It goes without saying that you should always provide key factual information for a potential buyer although this might run counter to your intuition – no business owner likes disclosing too much! We appreciate that recruitment businesses, possibly more than any other, hold sensitive commercial and financial data and before divulging such information you will want to set up Non-Disclosure Agreements for all parties to sign. While it might also be tempting to keep quiet about potential barriers to sale but it makes better sense to be upfront about potential deal breakers or price adjustment issues so that these are in the open and can be addressed. Trust has to be established early on to build relationships and ensure the deal is closed.
What’s your position in the Market Place?
As you begin to look at your financials with a view to a sale, it could pay to make subtle shifts within your company and also its position in the market:
- Increase the number of sales consultants you have – over-reliance on too few means a potential buyer may have concerns should those key personnel leave
- A permanent only agency is generally valued lower than an agency with a strong contract or temp book, even if it produces the same net profit.
- Ensure you have a varied number of clients in your specialist market sectors, over-reliance on a few large clients can often negatively impact valuation.
- Don’t be tempted to expand into other market sectors – a business focussing on one area is valued higher than one that tries to offer all types of candidates to all businesses
Too much of a minefield?
It’s clear that to be optimally prepared for sale while continuing to run a healthy, happy business is not easy and you will almost certainly want to bring external advisors with recruitment sector experience on board – accountants, laywers, HR specialists can all provide guidance that will smooth the process. Here at Azuki Accounts we have experience in guiding business owners through the sale process and will be happy to advise you, whatever stage of the exit process you are at.