Yes. You don’t need any sector experience at all to run or own a recruitment agency. If you are doing permanent work only then this may not be too much concern, but if your company does temporary too then it will make things a bit more complicated. There is nothing to stop you owning it, but you will need plenty of experience to keep a temporary desk going – its high stress level work.
For a further discussion on this, please get in touch with us and we would be happy to talk through what you need to do, as well as give you recommendations as to how to do it.
Yes its possible, but it very much depends on your circumstances. If you specialise in permanent recruitment, have connections to 3 large companies with the majority of your £100k turnover coming from 3 placements into those companies, then chances are buyers are not likely to pay you very much for your business. Your connection will probably be personal, and you won’t be able to demonstrate consistent turnover if you have all your eggs in one basket like this. However if your £100k comes from 30 different short term locum placements in a specialist sector, then your business will have a value and be of interest to buyers.
As ever with business sales, don’t forget that you have to be in the right place at the right time to achieve a successful sale. A business is worth what a buyer is prepared to pay for it.. Contact us today for a discussion about your recruitment agency.
This is a very difficult question to answer, but in a nutshell, recruitment businesses can take as little as two to three weeks to agree a sale, and as long as three or four years, if not longer than that.
There are a whole host of reasons for this, and achieving a sale depends on a huge amount of factors, including luck, circumstances, the economic climate, your geographical location, your profit margins, the number of staff, industry sector(s) worked in, whether you are covering temporary or permanent recruitment, how much repeat business there is, the structure of the business, the property used or owned by the business, your website, plus many random things you would never think of (and neither would anyone else other than the buyer!).
Timing and luck
Selling a business is very often a question of coincidence – coincidence that a buyer just happens to be looking specifically in an area, and you happen to be looking to sell specifically in that area. Although of course there are lots of things you can do to improve your chances of success, the answer to the question how long does it take, is just that it really depends on the circumstances of your business.
Realistic prices
One thing that influences sales dramatically of course is the expectation on price a seller may have. Sellers with unrealistic expectations for the business they have for sale tend to find it considerably harder to sell quickly, if at all, and often sellers who have very unrealistic expectations will either never sell or take a very long time to sell, usually up to the point when they decide to drop their expectations down and be more realistic in the price they are expecting.
Businesses remain fresh
It does not really matter to a certain extent how long it takes to sell when it comes to a price – the sale price of an employment agency will not depend on how long it has been on the market for in the same way that a house sale does. Firm sales do not become stale, so it does not really matter if you decide to put your business up for sale but then do not sell for a couple of years. Every buyer coming into the business will be in the same position as looking at it from afresh.
Recruitment companies will often take between 6 and 12 months to achieve a sale. It is quite different to other sectors – accountants can usually achieve a sale within 3 weeks (for businesses with less than £1 million turnover). It quite often depends on how the seller and buyer come to market. If the buyer is in desperate need of a purchase, or the seller needs to offload their business quickly for tax or financial reasons, things can move very quickly indeed. Contact us to discuss your business and see what we can do to help.
Yes if you can. It is much easier to sell a limited company than a business owned and run by someone trading as a particular name. It also gives the business more value. This may seem a little odd, and I often get asked about it because sole traders cannot understand often why anyone would want to do it, but it really does seem to add value.
There are a number of reasons for this, with the main one being how much easier it is to sell a limited company than it is to sell a sole trader business. A limited company can be bought and sold like any other, with the new owner acquiring the shares and becoming a director, and the old owner selling the shares and resigning as a director. If you compare this with a sole trader, the sole trader needs to either take on a partner and then resign from the partnership, or arrange for the new person to come in and take over the practice on a sole trader basis.
The latter does not seem to be too problematical, but it is much easier to convert to a limited company and do a share sale.
So, the advice to convert to a limited company is because it is usually a much smoother transaction to sell a limited company than it is a sole trader. We get a lot more interest in limited companies from buyers.
There is no good or bad time to sell a business.
Your own thoughts on the state of the economy, the prospects of your business making or losing money at a set time, and the future prospects of your business are completely irrelevant for the purposes of the sale of a business. This is because the buyer has their own reasons for making a purchase, and these reasons will be very different to your reasons for selling. Sellers often fail to appreciate this when it comes to looking at potential buyers, as they very often put their own set of values, opinions and prejudices first before considering the buyer.
If a buyer has decided they need to purchase a business in order to achieve a goal, or to implement a system, then there is not going to be a good or bad time to do this, but simply a time. This time can be in a completely different world to the one being currently occupied by the business they are purchasing, and sometimes sellers find it really hard to get their heads around this.
Take an example of a firm that is not struggling, but not particularly making a lot of money in a difficult market.
The seller wants to get out, because they are fed up of doing the same work for very little money, and are looking for a buyer to take over. In their minds, they think that it is impossible to make any money from the work they are doing at the moment, and cannot imagine why anyone would want to purchase their business.
The buyer however, has completely different plans, because they have work to put through a firm for a completely different source to the current sources of work the seller has. All they need is an existing business to take over, in order to achieve their goals.
To the one party, the seller, the market is awful and chances of making any money are very limited, but to the other party, the buyer, there are huge potential sources of work which they want to tap into, if only they were able to purchase the business the seller is disposing of.
So, one person’s difficult market is another person’s prosperous market, and it is very rare that the two actually meet at the same time.
Buyers are looking for a business they can add value to. They want to take over a business where it is possible to grow, increase profits, generate more turnover, and expand teams.
If you take the opposite extreme of a small business in a sector that’s not particularly busy, generating a small amount of profit from a relatively low turnover without much marketing and limited staff numbers, but possessing the right structure and offering a buyer huge potential to increase turnover and generate profit, then a lot more buyers are going to be interested in the latter business than they are the former.
In a way, I guess this kind of answers the question in terms of whether or not there is a good time to sell a business, or when is a good time to sell a business, because to a certain extent, as your business goes on its journey from inception through to disposal, it changes in shape and size. There will be different types of buyers interested at different stages of the life of a business, and it is true that there are certain types of business that are a lot easier to sell than others. However, there is no good time to sell in terms of external factors. For the reasons given above, you just never know when a buyer is going to come along and why a buyer is looking to make a ‘good’ offer.
In terms of other factors affecting a time to sell, which can include your own situation, then things are very different.
For example, it is never a good idea to try to sell just before you plan to retire or close a business down. Buyers will have a very good guess that a 75-year-old looking to dispose of a business is not going to be hanging around for a long period of time if they are unable to sell, and so are likely to be in a much weaker position when it comes to negotiation. If that same 75-year-old had looked around when they were 60 years old, things may have been very different indeed.
We offer exit strategy advice and assistance as a paid service, because it is so complex at any point in the life span of a business. Everyone has different plans for the future, and for their businesses and personal life, and they all intertwine, which makes exit strategy planning all the more important.
Summary
The short answer to this lengthy article is that there is never a good or bad time to sell a business. You don’t know the path a buyer is taking, in the same way that they don’t know your own circumstances. External market forces may be affecting your trading, but a buyer may see it completely differently. Do not foist your own opinions onto a reason for the sale or purchase of a company, because it always seems to end in the wrong decision being made.
If you would like further assistance in relation to timings, exit strategies or the sale of your business, please drop us a line or give us a call.
Cash on Completion
This is the preferred option for many sellers. Cash on completion works in favour of those who are looking for a clean exit – those going into retirement for example, or someone who is in ill health. Once the company is sold, the buyer gains immediate ownership while a handover period is usually agreed on by both parties. Payment of the transaction is settled once the handover period is complete
Deferred Payments
With deferred payments, a proportion of the price is paid after completion of the sale; on a monthly, quarterly or annual basis. This allows the buyer to pay for the transaction out of future profits, rather than handing over too large a sum at any one time. By accepting payments over a certain amount of time, the value of a client’s business can often increase.
Earn Outs
An earn out is when an initial sum is paid upon completion and then additional performance-related payments are made subject to certain caveats. Further payments are often linked to future growth and may require the seller to remain in the business for a period of time in order to assist in meeting the agreed criteria. This type of transaction would also allow the buyer to finance the deal from future profits. It can also involve clawback agreements – where a seller has to return some of the monies paid if the business fails to perform.
Investment/Elevator Deals
This type of deal allows owners of growing businesses to essentially ‘de-risk’, and take a proportion of the cash ‘off the table’ by selling a percentage of the company. Typically, such owners would remain involved alongside the incoming investor so the business can grow further. Often, the owners exit at a future stage with a ‘smaller piece of a much larger pie’. Sometimes also known as ‘slavery’ – some investors prove themselves to be complete psychopaths and attempt to flog the owners to death in order to increase the turnover and sell the business on at a profit. Similarly it can also be the path to a very comfortable existence if you find the right investor!
Contact us for advice.
There are 6 key sectors where a recruitment agency has more saleability and higher chances of achieving a better price:
- Engineering
- Healthcare
- Renewable Energy
- Teaching
- IT
- Logistics and warehouse
Engineering and IT are probably the two sectors most likely to attract interest. Healthcare agencies with good ongoing connections and contracts will achieve plenty of interest, with the same for teaching. Quite often the saleability will depend on the contracts, staff team and connections within the recruitment business. Contact us to discuss your agency.
Quite often we refer to ‘staff for TUPE’ in our listings. Taillte Mallon, our business manager, has prepared the following note.
What is TUPE?
TUPE stands for Transfer of Undertakings (Protection of Employment) Regulations 2006.
A ‘TUPE transfer’ happens when:
• an organisation, or part of it, is transferred from one employer to another.
• a service is transferred to a new provider, for example when another company takes over the contract for office cleaning.
Your rights are protected under TUPE if both things apply:
• you’re legally classed as an employee.
• the specific part of the organisation that’s transferring ownership is based in the UK.
Does the size of the business matter?
No, the size of the organisation you work for does not matter. Your rights are still protected if you work for a large employment agency, or a small recruitment business.
When does TUPE apply?
The 2 types of transfer where TUPE applies are:
Business Transfers
This is where a business or part of a business moves from one employer to another. This can include mergers where 2 businesses come together to form a new one. It’s possible for the business, or part of it, to have just one employee.
• Your employer must change identity for TUPE to apply.
• You will automatically transfer to your new employer when the transfer happens.
Service provision changes
This is where contracts are taken over. This can be because:
• a service provided in-house is taken over by a contractor (known as ‘outsourcing’)
• a contract ends and the work is transferred in-house (known as ‘insourcing’)
• a contract ends and is taken over by a new contractor (known as ‘retendering’)
• this can also include labour contracts
TUPE Protection
If an transferred employee is dismissed either because of the transfer or a reason connected with it, their dismissal is automatically unfair.
Notice Period
• The organisation needs to give 45 days’ notice. However, some organisations will give more than this to enable employees to ask questions and attend meetings.
• Employers must inform and consult with either a trade union or employee representatives about the TUPE transfer
• Businesses with fewer than 10 employees are not required to invite the election of representatives for consultation purposes if no existing arrangements are in place.
How long does TUPE last after transfer?
• The protection period by TUPE is indefinite. If the new employer attempts to change the terms and conditions of a contract because of the transfer, it’s illegal. TUPE can still protect an employee even years after the transfer.
RAS Recruitment Agency Sales is owned and operated as part of the Jonathan Fagan Business Brokers companies. Our two owners are both Fellows of the Institute of Recruitment Professionals (FIRP) and have owned recruitment agencies for over 20 years. We have been involved in buying & selling businesses for the same length of time. Uniquely, we own recruitment agencies specialising in the legal profession and one of our owners is a solicitor. Our recruitment agencies deal with both permanent and locum lawyer roles. We are in an ideal position to be able to advise on the best course of action in terms of preparing the legal documentation required for a sale or purchase, and to also guide you to the best advisers for your business (and at the best price). We also own a business lawyers platform, www.interimlawyers.co.uk, which can provide legal advice & assistance starting at just £75 per hour.
Lets face it, there are a lot of websites out there all pointing to different multiples for valuing your recruitment agency. If you type the question into Google, the answer is usually that any recruitment agency is worth at least 6 x EBITDA (lets take the easier definition of net fee income – ie your turnover figure).
So if we take the figure of £300,000 in annual net fee income, is your agency really worth £1.8 million?
What do you think? Would you pay £1.8 million for a recruitment agency that may have 20 staff, it may have 2 members of staff. There may be 3 clients, there may also be 400 clients. Your database may contain 50 contractors, or you may have built up a bank of 3,000.
At the end of the day, your recruitment agency is worth what a buyer will pay for it, and no-one in their right mind is going to pay £1.8 million for a recruitment agency specialising in say general permanent recruitment at a junior end, with very limited profit margins and wholly dependent on the connections the owner has built up. Its common sense, although unfortunately this can go out of the window when agency owners start applying accountancy multiples that are mostly pie in the sky.
Your agency is a service business. You have no assets to sell, you have the professional capability of your staff and yourself to offer a buyer. What a buyer is prepared to pay for that capability depends on a lot of factors that all affect the likely sale price.
Multiplying figures by other figures and coming up with something utterly random and unjustified by physical evidence is very unlikely to reflect reality.
If you would like a real world valuation based on your circumstances, please get in touch.
Quite simply – the staff. Without the staff, your recruitment agency is probably close to worthless, unless you have strong evidence of ongoing work and good contracts. So next time you think about firing someone for not achieving their monthly target, take a breath and think it through.
Recruitment consultants with provable billing records and a history of maintaining and building strong connections add immense saleability to your recruitment agency.
There are a few reasons for interest in buying recruitment agencies – some of which you may not realise!
- Expansion – other agencies in similar sectors looking to expand their reach, whether geographically or simply to increase the size of their order books.
- New sectors – it is incredibly difficult to decide to set up in a completely new sector and a lot easier to purchase a business already operating and known for its work in an area – an example of this is legal recruitment.
- Financial issues – if a company has financial issues with substantial debts, they may look to acquire a fresh business and then move forward with that and allow the existing company to go to the wall. This is probably more common than you would imagine.
- Step up the ladder – we get parents of recruitment consultants looking to acquire an employment agency to give their children a leg up with their career.
- Skip the first 5 years of start up – lets face it we’ve all been there. You set up a business, its very exciting etc. but how many years does it take to actually give you a regular income? Much easier to acquire an existing agency with clients and staff.
- Other companies moving into recruitment – we hear this all the time in all sectors – ‘surely it can’t be that hard to do recruitment/accountancy/law/surveying etc.. I’ll set up myself and prove it can be done. After all, recruitment consultants just send out CVs and get paid a load of money.’ Obviously these types of buyers can be a good option, regardless of the shock they get when they realise how difficult recruitment consultancy can be!
- Its a good business – you may not realise it, but there are some very attractive recruitment agencies out there for buyers to acquire – yours may wel be one of them. Contact us today for a chat.