If you think your business is ready to sell as soon as it becomes profitable, think again. In a new report from Recruitment Entrepreneur International, James Caan gives some valuable advice to help you know when the time is right to leave.
Jan 13, 2023 – Scaling and creating a recruiting business that appeals to investors or potential customers is one of the most challenging areas for most recruiting entrepreneurs. For many entrepreneurs, the ultimate goal is to eventually expand the business and exit the business they built. Some believe that a business is ready to exit as soon as it becomes profitable. But profit is only one component of many things potential buyers will be looking for, he says James Caan in a new report from Recruitment by Entrepreneur International. “Even a profitable business can suffer from pricing problems or declining sales without these other components,” he said. “The buyer’s attorney will do everything they can to identify potential problems in the business, often with the goal of lowering the price.”
“Now I’m considered a successful entrepreneur, but when I started my first recruitment agency, I made the same mistake,” Mr Caan said. “The business was making $3 million in profit, so I believed it was ready to sell. A corporate finance friend did a thorough 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 be wondering right now if your business is ready to go. Committing to something that can be a long and expensive process is a big decision. So how do you know if you’re ready? Mr. Caan offers some key points to consider:
1. When should you consider an exit strategy?
An exit is something to strive for from the very beginning – it’s never too early to start building towards an exit strategy. If you have clear processes and governance, along with a strategy for scaling, you will be much better equipped for the future.
Recruitment Entrepreneur International is a private equity firm with more than 30 recruitment companies in its portfolio, covering numerous employment sectors, at various stages of growth. Founded by international entrepreneur James Caan CBE, it provides talented individuals with funding, best-in-class operational infrastructure, training and management advice. His success lies in his ability to provide knowledge and practical know-how to help start-ups and scale-ups grow, scale and materially increase profits – ensuring his portfolio partners can achieve high capital 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,” said Mr. Caan. “Once you understand exactly what the customer is looking for, you build in the time and space to fully review this information for any errors or issues the customer might notice – and this allows you to improve and supplement to maximize the value of your business in a potential sale. “
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2. What are customers looking for?
When evaluating value creation within your company, you need to think like a buyer, not a seller. Why should they buy your company and not another? Some factors a buyer may consider include the talent currently in place in your business, the strength of your infrastructure, internal processes and management, and the long-term growth plans you already have in place. Would all these aspects of your business stand up to scrutiny?
How to build value within your recruiting firm
What makes one recruiting firm more attractive to an investor than another? Investors have their own strategic agenda; they may seek investment in a specific sector or region and will measure value in their own unique way. But a checklist of “buyers” will always be built on key principles.
It is important to focus inward first; your goal is to build a comprehensively structured business that delivers value – not just in terms of revenue and profit, but across all areas of the business, according to a new report by James Caan of Recruitment Entrepreneur International. “The strength, depth and resilience of the business infrastructure, governance and internal processes are integral to its value – therefore strengthening all elements of the recruitment business immediately diversifies the portfolio of potential customers,” he said.
“The recruitment sector is often difficult to predict so buyers will be looking for companies with a sound, credible and strong business strategy,” said Mr Caan. “This can include a diverse and consistent customer base, sustainable positions and a stable revenue stream.”
3. How “ready to go” are you?
Achieving a successful exit has several key steps, says Mr. Caan. You need a clear record of good business practice, ideally showing that you have achieved at least three years of consistent development and growth. Ways to demonstrate this include showing that the company has met its plan and achieved its goals. “Buyers will want to see a balanced distribution of revenue among customers, with none representing more than 10 percent of total revenue, and comprehensive reporting on financials, metrics, balance sheets and detailed budgets,” he said. “They will also likely want to see that you have ensured quality corporate governance with a clear understanding of risk, controls, regulations and compliance.”
Another important element is the ability to prove that your business can support future growth. “You can illustrate this with a clear client/customer strategy and a strong management team with a clear mission,” Mr Caan said. “Buyers will want to see good staff performance and long-term commitment to the business, as well as a history of attracting and retaining talent.”
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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Editor-in-Chief; and Stephen Sawicki, Editor-in-Chief – Hunt Scanlon Media