Are you building your company with the intent to sell it at some point in the future (perhaps as part of your exit strategy or retirement)? Or are you thinking that you’d like to make an acquisition one day?
In either situation, you’ll want to partner with the right broker, engage multiple buyers or sellers, and know the company’s valuation. And remember, the following five key areas are especially critical to determining a company’s strengths (and weaknesses). As a seller, you want to be sure that your company meets all of these criteria; as a buyer, you want to look for these elements in any potential purchase.
Diverse Customer Base
A few months ago I wrote about the importance of not neglecting your small and dormant accounts. An annual revenue of $30 million may seem impressive on the surface, but if half of it comes from only a handful of large accounts, your company’s valuation can suffer tremendously. So be sure to make client retention and account diversification two of your top business priorities.
Focus on Temporary Staffing, Not Direct Hire
It’s hard not to love direct-hire business, with its $10,000 and $30,000 fees that are virtually all upside and tough to turn down. When it comes to a company’s valuation, however, the recurring revenue of temporary staffing is much more appealing to a buyer than the large one-time fees from direct-hire staffing. Also, in an economic downturn, direct-hire business can come to a screeching halt whereas temp-to-hire revenue will often continue to roll in (and sometimes even increase!)
Strong Management Team
Good luck selling the company if all of its successes and failures are tied directly to you. If you are the company (its main salesperson, its big role in operations, etc.), the company loses significant value when you’re no longer in the picture.
Build a management team that knows more about staffing than you do. You should be able to leave the office for a month-long vacation and come back to an environment that is business as usual. In addition, if you sell your company you’ll need to be able to deliver the team with it. So make sure you build your team’s loyalty with the company (rather than with you as an individual).
Leverage a diverse customer base and focus on temporary staffing to maintain steady growth. If it’s maintained over multiple years, a 10-15% annual growth rate is certainly respectable. Buyers and sellers should steer clear of any company that has hit its peak and plateaued, however, and they should be wary of companies that have factored sporadic direct-hire business into their numbers.
Strong Gross Margins
Buyers don’t care whether your company’s revenue is $5 million or $50 million if it’s not profitable. A lack of profitability makes any company much less attractive to potential buyers.
If you think there’s any possibility at all that you’ll be selling or buying a staffing company in your future, now is the time to start planning for that event by learning about (and building up) the elements listed above. Even if you never end up selling or purchasing a company one day, taking the time to understand what makes a company strong can help you and your organization achieve success.