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.
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.