How to sell your own recruitment business: The power of the Multiple
So – congratulations. About 5 years ago you took the leap of faith and started your own recruitment business. You left the security of the office environment, the support of your current colleagues and decided to start your own recruitment agency. Originally growing it from your back bedroom, you have been able to grow an agency full of billing consultants and admin staff that have allowed you to position yourself at the top of your agency with a view to now sell this business.
You’re living the dream!…
But how have you done it? How have you gone from a seemingly “OK” business to one that’s being now valued at £2/3/7million+? How have you done that? What steps have you had to take to get yourself to that stage? Is it luck? Commitment? Experience? Knowledge?
Preparing a Recruitment business for sale, heck any business for that matter is one of the most important parts of the exit process. and while it can seem monotonous and “pointless” at times, the unfortunate knock-on effect of a poorly prepared business can mean the difference between a couple of million in your back pocket and well, not a couple a million!
Know your Worth
The magic of selling a recruitment business comes with “the multiple”; a figure used in the valuation of a company that the “guys with the cash” place on an agency, having taken a good look at the business and potential growth of the agency in the next few years.
This Multiplier is a product of the Future Maintainable Profits of the agency – essentially, how many years would the profits be maintained if the business were to carry on doing what they were doing, without any drive or growth.
Understand your Multiplier
Having understood the importance of knowing your worth as a business, you need to identify what a reasonable multiplier on your agency would be.
The common “go to” figure at this stage, is the Profit of the company. and while the profit of an agency is an important influencer in any sale, it’s important to understand that it’s not the only factor.
For example, let’s say you had met two vendors – both of whom had just sold their own recruitment agencies in the M&E sector. Both “high as a kite” and with a nice heavy sum of cash in their back pockets.
Each Vendor made the same profit in their last year of trading, and yet the sale price for Vendor 1 (Bob) was £1.5m while the sale price for Vendor 2 (Laura) was £3.5m. Not only does this show that women are better than men at selling recruitment agencies, but more importantly it shows that the profit of a company is not the only influencer when it comes to exiting.
Influence your Multiple
So, if it’s not all about Profit then what is it?
For this, there’s an analogy that we’ve used time and time again that really seems to capture the essence of what really creates the value in a recruitment agency.
A Recruitment Business is a lot like a family home. Every component affects the value of the home and it’s the same with an agency. If profit represents the number of square-feet a property has, then let’s explore other areas that would influence the sale of a recruitment business. The business equivalents of things like garden size, proximity to good schools, foundations, bedrooms, bathrooms, reception rooms.
- Management structure
- Accounting standards
- Market sector
- Market share
- Employee attrition rates
- Growth potential
- External influence
- … and so on!
So, to sum up this brief examination of the “power of the multiple” when it comes to selling your recruitment business, it’s important to focus on the “bottom line” but equally as important to realise that the profit of an agency is not the only element that will influence the sale of your business.