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Part 3 – Has Chubs Survived?

by MAX JONES / Thursday 15th September 2016

Negotiations

I know what it’s like. Waiting for the final instalment of this 3 part blog series around the exciting topic of selling your own recruitment business, is as worse (if not worse) than waiting a whole year for the next instalment of Games Of Thrones. So I thank you for your patience, & while there will be no fire breathing dragons, no manic Kings & no White Walkers moving south of the wall, we will finally know what happened to our good old friend – Chubs, the Business Owner.

A catch up…
It’s now two years since Chubs respectfully declined an offer from Peter Jones to buy his recruitment business with a P.E of 3. After 2 long years of change, re-structuring & strategic application, Chubs is now eagerly waiting to meet with Mr. Jones once more. For the last 24 months, Chubs & his team have been undertaking a serious Business Face-lift. Constantly assessing the direction, strategy & focus of XYZ Limited, they are convinced that their monthly internal audits of their business are ready to finally pay the dividends they deserve.

Since their meeting, Chubs has heeded the advice of Mr. Jones & put a Management Team in place which evidently does not rely on Chubs being in the office to drive things forward. Chubs is really beginning to understand that a Business Owner is an owner not an operator! The monthly management accounts (MMA) of the business are clearly showing that the business not only generates at least £300,000 profit but that there are copious amounts in the background to meet all future Tax liabilities.

Not only that, but his team have authored (with his help!) the Information Memorandum (IM) which has already been presented to Peter Jones prior to today’s meeting. The IM is essentially the businesses CV & not only that but Chubs has made sure that everything outlined on the CV can be backed up by himself. 

And finally Chubs has carried out his own monthly SWOT analysis of XYZ Ltd to make sure that he knows that Sir Alan Sugar, Sir Richard Branson & Steve from the local estate (Peter’s trio of terror!) will all be satisfied that the business has been run well & “groomed” effectively & properly for sale. Constantly making sure that he is doing his due diligence has meant that today he’s feeling actually quite optimistic about the whole process. A massive change to 2 years ago. 

Peter Jones is also feeling pretty optimistic. He has received the report prior to today & is excited by the obvious robust nature of the new look Management Team; he is thrilled by the spread of market sectors & amazed by the lack of end client dependency that was a major sticking point for him last time around. The growth plan set in place by Chubs & his team suggests that profits will increase steadily over time & that these projections have grown out of a clear, realistic & thoughtful growth strategy.

Mr. Jones is aware that this business will not only generate £300,000 for maybe 5/6 years after, but it is very very likely to actually surpass those record profits in the next coming years – things are looking great for everyone!

The verdict…
Peter Jones & Chubs sit down & discuss the future of XYZ Ltd. You could feel the tension, the excitement & the anticipation. After a few thousand hours of debate, deliberation & a lot of weird silences, Peter Jones agrees with his due-diligence team that XYZ Limited ought to be valued against a PE of 7. At which point, Chubs nearly falls off his chair with excitement…

Therefore, without boring you too much right now, the valuation of this example business would be 7 x the PBIT (7 x 318,000 for example). So, in this example, we are suggesting that it would be reasonable to seek a purchaser for the business willing to pay an “initial consideration” of seven times the PBIT of the business. This would therefore generate an “initial consideration” for the shareholders (in this case just our man Chubs!) of the business of £2,226,000.

Not bad hey!  

So, while this has been a very brief introduction to the ideas around selling a recruitment business, I hope it has given you a good idea of some of the key areas you need to be thinking about in the lead up to selling your business. Ironically these fundamentals can never be put in place too early, so while you might not be looking to sell up & live in the Maldives for the rest of your life just yet, perhaps adopting some of the strategies taken on by our friend Chubs now, will put you & your business in good stead for the future.
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