How to Raise the Value of a Staffing Agency Prior to Selling
Staffing firms are one of the most sought-after businesses due to stability and profits.
It’s no secret that our global economy is flourishing, with financial experts claiming 2015 to be the best year for America since the Great Recession of 2009. Unemployment rates are down, the housing market is steady and buyers are actively looking for small businesses to buy in growing cities in the Southeast. When our economy thrives, so does the Staffing & Employment Services sector, making it a perfect time to consider selling your Staffing firm.
Staffing firms are a huge part of our national workforce; currently, over 3 million temporary and contracted employees work for a staffing company in America and these same firms have helped fill over 5 million jobs in the past year. Staffing agencies have helped generate over 93,000 jobs in North Carolina alone, and as more businesses move towards flexible hours and remote employees, the industry is forecasting a 5% growth increase for this year. Employment services is a low-risk but high competition field with profit margins ranging anywhere from 16%-28%, depending on the type of work. Because of these factors, staffing firms are in very high demand by strategic buyers and if you have been thinking about selling your firm, this could be the perfect time. The first step is finding out how much your business is worth. We have included some of the formulas that may be used to calculate the value of a staffing firm. Remember, only a professional business broker can tell you the true value of your business and these formulas are to serve as a guide only.
- 20-35% of Annual Sales
- 2-5x SDE
- 2-5x EBITDA, 3-4x EBIT
Now that you have an idea as to what factors are important in the valuation of a staffing firm, you can begin taking steps to increase the value of your business. Our intermediaries have valued dozens of staffing firms and have compiled these 5 tips to help increase the worth of your business so that when you decide it is time to sell, you can secure the highest sales price possible.
Profit margins play a major role in determining the value of an employment agency and job placement in specific industries can help you bring that profit margin up. If your firm is currently specializing in one area, you may want to consider branching out into other industries to help increase your profits. While most firms bring in profits a minimum of 9%, the average per industry is listed below.
- Clerical & Light industrial: 16%
- IT, Healthcare & Professional: 25%-28%
Not only will branching out into several industries help your profits, but diversifying your staffing solutions will also appeal to a larger pool of clients. The main types of employment that are offered by staffing firms are temp-to-hire, full time and contracted. Hiring employees is challenging enough, but allowing clients to choose from these three options will up your appeal and keep them coming back to you for all of their staffing needs.
Solid Sales Team
As mentioned before, your annual sales are a big part of the valuation, so you’ll want to make sure your sales are at an all-time high and trending upwards. The best time to sell a business is when it is doing well and while this may feel counterintuitive, think about it from a buyer’s standpoint; would you buy a business that wasn’t slated for continued success? Having a solid sales team in place with a developed strategy will go a long way for your firm. Your sales team should have a prospect list with companies that they are always aiming to stay in front of so that when staffing needs arise, your firm is what comes to mind. By offering a variety of staffing solutions in multiple industries, your firm will appeal to players from every field. Not only will a strong sales team increase your numbers, but buyers will feel more confident in your firm knowing there is a strategic plan in place.
Client diversification is important to every business, but due to the seasonality and concentrations in this industry, diversifying your customers is critical. Every agency wants to be the go-to firm when a large corporation is sourcing 100 employees for a new office or project; but those positions may not be permanent revenue to your firm. Getting in good with smaller companies that may only need a handful of employees here and there will help balance your sales volumes and keep a steady cash flow. In addition to raising your financials, buyers will feel more secure about a business that has an even distribution of revenue among customers. If more than 30% of your revenue is tied to any to customer, it is time to expand and seek out smaller accounts to harmonize your client concentrations.
Location is critical when it comes to staffing services. Look at your market; are you in a metropolitan area? Are there several mid to large sized corporations in your city? What is the unemployment rate? These are key questions to ask yourself when determining the service area of your firm. Buyers are going to take location into consideration when seeking out an employment firm because the local economy dictates staffing needs. A robust local economy equates to a larger client pool with more opportunity than a smaller community.
Reputation for Quality
In this industry, reputation is everything. Build your reputation by supplying enthusiastic, skilled and highly employable people. You do not want your firm to be known as a less-than-satisfactory agency, so we recommend investing more to get a bigger return when it comes to screening employees. Make sure all of the employees you are seeking positions for are up to your standards and have been vetted, drug tested, background checked and have references on file. By taking these steps, clients will begin to identify your firm with high-quality candidates and buyers will be impressed with the measures you take to ensure customer satisfaction.
If you are looking to sell your staffing agency, the times have never been better. The economy is thriving and the small business market in the Southeast is prosperous. Small Business Administration (SBA) backed loans are being granted more often and for more dollars than ever before, creating a very favorable position for business owners looking to sell. The first step to selling your business is getting a valuation. Valuations are one of the most important tools a business owner can equip themselves with. At Viking Mergers & Acquisitions, we offer no-cost, no-obligation valuations to business owners. Give yourself that extra edge; call us today and find out how you maximize the value of your business and make this the year you take the next step.