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Recruitment Agency Owners – Do you have an end game?

Recruitment Agency Owners – Do you have an end game?

It might seem obvious but one of the first questions we ask our clients when we start working with them is, where do they want to end up or what is their exit?

Very often the subject becomes a discussion around options open to them, which generally results in two to three choices.

  • Grow to sell in an open market sale
  • Sell to your staff MBO
  • Grow to retain but role change

Growing your business to sell in an open market

screen-shot-2016-11-16-at-11-26-45This will require you to make decisions about how you grow it, which will be different to some of the ones you might otherwise make.

When you sell your business to a would-be-buyer generally you want to maximise the value it is worth. The value you receive for your business will typically be a multiple of the EBITDA (Earnings before interest, tax, depreciation and amortization). This in turn will require you to look at many factors but profitability is probably the key one.

A quick glance at the Recruiter Hot 100 will give you an idea of the types of productivity other clients are achieving in your sector. These are the productivity levels for all employees and include non-fee earners and trainees so a figure over £100,000 per head annually is a good starting point. This year the top companies are achieving in excess of £175,000 per employees.

Another key consideration is how important are you the owner(s) to the businesses viability and profitability. If you intend to exit the business when you sell then how strong the business would be without you is key otherwise what are the purchasers getting.

There are other considerations such as:

  • Are you a niche recruiter or generalist?
  • What is your spread of clients
  • Length of key client contracts?
  • Strength of your candidate database and talent acquisition processes?
  • Which market sector are you occupying?
  • Assets and debt of your business?
  • Business mix Perm vs. Contract/Temp/Interim
  • Consultant Training and Development programmes
  • Strength of your leadership team
  • Staff turnover and tie in
  • Branding

All of these have a part to play in determining the value of your business and even then other factors such as the economic environment and markets attitude to risk will have an impact.

Typically it can take clients three to four years to get their business to a level where investors would pay serious money for your company. The world can change and the ‘multiple’ they expected for their business changes with it so this is not without risk.

Grow to sell to your staff

screen-shot-2016-11-16-at-11-23-36Many of our clients have a strong emotional connection to their business and staff and often have a preference for selling the business to key employees. This may surprise many as it does not often leverage the highest return for owners but for a whole set of emotional reasons this is preferable.

Naturally in any independent valuation all the above factors have a consideration but the strength of your leadership team is obviously key.

For clients who are considering this exit they often see a role for themselves in this newly formed business structure. This can either be as a non-exec, chairman, advisor or mentor.

Payments to the owners can be staggered and staged and are often less dependent upon external factors.

The transition is seen as gradual and less time critical and formal. Whilst this might work for the owners not all potential acquirers may be happy.

Getting the ‘old boss’ out of the way so they can make the changes without interference can be highly desirable for some management teams and also a challenge. Emotions and feelings can make this more complicated, hazardous and not always preferable.

Grow to retain but with a Role change

Finally the last group of exits are less about exiting the business but owners exiting their existing role. This usually involves people moving from a situation where they are 90% involved in the day to day transactions of the business even as a key biller to one where they have no operational requirements for securing, delivering or managing candidates, workers or clients and are working 90% ‘on the strategic management’ of their business.

Many of our clients who go for this role are seeking an ‘ambassadorial’ role where they can lead and champion the business whilst retaining a ‘strategic leadership and mentoring’ role.

Like both the previous examples the development of the senior leadership team is key but as there is no exit required it does allow key employees who are deficient in certain leadership qualities to play a key a lead role in the business and develop their leadership skills and qualities overtime.

In many cases this is often never the ultimate destination but on the journey to either of the two outcomes already discussed. This however can take many more years to achieve and therefore worthy of consideration.

Your business exit

screen-shot-2016-11-16-at-11-29-43Your business will be individual, your market, clients, circumstances and staff will all be unique and what works for some may not work for you. It is why when we meet customers this is an interactive discussion and a key consideration.

Often we start with a ‘Grow to retain’ objective that shifts and changes as the process of evolving the business progresses.

Whether you contact the Recruitment Training Group for guidance and support or another business coach we would encourage you to seek support.

The final consideration for you is how the ‘coach/advisor’ is being remunerated. If the coach becomes an ‘investor’ in return for their advise, then maximisation of their return will be a key consideration for them. They will naturally have a preference for a sale in the open market, which as long as your aspirations are aligned will not be an issue. This will work well for you, as it will ensure you receive the maximum return too.

A coach however should be working with you to help you make the right decision for you and on developing you as a person they should not be ‘telling’ you what to do but guiding and supporting you in making the decisions you encounter. You should expect some work with you on developing your personal skills as well as highlighting and working on any ‘limiting beliefs’ you may have that are inhibiting your personal development and that of the business.

If a confidential discussion would be beneficial then feel free to contact us.

Posted by Ian Knowlson

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