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If you think your business is ready for sale as soon as it’s profitable, think again. In a new report from Employment Entrepreneur International, James Caan offers some tips for knowing when it’s time to quit.
January 13, 2023 – Growing and creating a recruiting business that appeals to investors or buyers is one of the most challenging areas of recruiting for most entrepreneurs. For many entrepreneurs, the ultimate goal is to finally scale and exit the business they built. Some believe that the business is ready to exit as soon as it becomes profitable. But profit is only one part of the many things buyers want, he says James Canaan. In a new report from Recruitment Entrepreneur International. “Even a profitable business can fail due to pricing problems or sales without these other elements,” he said. “The buyer’s attorney will do everything possible to identify potential issues in the business, often to get the price down.”
“I’m considered a successful entrepreneur now, but I made the same mistake when I built my first recruitment agency,” says Mr Khan. “The business made $3 million in profit, so I believed it was ready to sell. A friend of mine in corporate finance did a detailed review of my recruitment agency and, to my surprise, concluded that the business was not for sale – because we were only focused on sales and profitability.”
You may now be wondering if your business is ready to take off. Committing to a process that can be long and expensive is a big decision. So how do you know you’re ready? Mr. Khan offers key points to consider:
1. When should you consider an exit strategy?
Exiting is something that should be considered from the start – it’s never too early to start building an exit strategy. If you have clear processes and governance in place, alongside a skating strategy, you’ll be better equipped for the future.
Recruitment Entrepreneur International is a private equity firm with over 30 recruitment companies spanning multiple recruitment sectors at various stages of growth. Founded by global businessman James Kahn CBE, it provides talented individuals with financial support, best-in-class operational infrastructure, coaching and management advice. Its success lies in its ability to provide expertise and actionable expertise that helps start-ups and scale-ups scale, scale and materially increase profitability – ensuring that its portfolio partners can achieve higher equity value on exit.
“It’s a good idea to start collecting key documents and information about your business at least one to three years in advance,” says Mr Khan. “If you understand exactly what a buyer is looking for, you’re building this information in time and space to fully assess it for any errors or problems a buyer might notice — and that allows you to improve and refine it to maximize value. In your salable business.
Related: Retaining your employees during the Great Resignation.
2. What do buyers want?
When evaluating value creation in your business, you need to think like a buyer, not a seller. Why buy your business over another? Some things a buyer will consider are the talent currently in your business, the strength of your infrastructure, internal processes and management operations, and what long-term growth plans you already have. Do all these aspects of your business stand up to scrutiny?
How to build value in your recruiting business
What makes one recruiting business more attractive to an investor than another? Investors have their own strategic agenda; They may want to invest in a particular sector or region and measure their value in their own unique way. But a “buyer’s” checklist is always built on key principles.
It is important to focus inward first; Your goal is to build a business that is structured holistically across all aspects of the business, not just in terms of revenue and profit, according to a new report by Recruiting Entrepreneur International, James Kahn. “The strength, depth and robustness of the business’s infrastructure, management and internal processes are critical to value – so strengthening all elements of a recruitment business immediately transforms a buyer’s portfolio,” he said.
“The recruitment sector is often difficult to predict so buyers are looking for businesses that are savvy, credible and have a strong business strategy,” said Mr Khan. This can include having a diverse and consistent customer base, a sustainable niche and a steady stream of revenue.
3. How to “Prepare for Exit”?
A successful exit has several key steps, says Mr Khan. You need a clear record of good business experience that demonstrates at least three years of consistent development and growth. Ways to demonstrate this include showing that the business delivered on its plan and achieved its goals. “Buyers want to see a balanced distribution of revenue among customers that do not represent more than 10 percent of total revenue and do not have comprehensive reporting on financials, metrics, balance sheets and detailed budgets,” he said. “They also want to see that they deliver quality corporate governance with a clear understanding of risk, oversight, regulations and compliance.”
Another important element is being able to ensure that your business can support future growth. “You can explain that with a clear client/customer strategy and a strong management team,” Mr Kaan said. “Buyers want to see good employee retention and long-term commitment to the business, as well as a track record of attracting and retaining talent.”
Related: Hiring high talent at an unprecedented time
By Scott A. Scanlon, editor-in-chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media
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