Futureproofing Your Staffing Business: Preparation for the Sale of Your Business…or Not

Selling a business is an extremely complex, daunting, and emotionally involved task for business owners and they involve much more than crunching and matching numbers. Given the complexity of the process, if you are preparing to sell your business, the planning and preparation should begin two to three years in advance of your planned sale. Throughout this planning process there are key steps to execute while preparing to sell.

Make your company attractive and maximize general valuation

When buyers evaluate prospective companies for purchase, they are typically looking for a couple of key elements. The first is going to be “fit” within their portfolio of companies or within their own pool of  strategic buyers and this goes beyond what industry or vertical your company is in. It considers size and growth potential as well. The second is an attractive valuation. Here are the five fundamental factors that can improve your valuation:

• Quality of the management team, any senior leaders excluding the owner
• Accurate and quality financials
• Transferability and assignment of key customer relationships
• Business plans for the future, two to five years later
• Efficiency and effectiveness of processes and systems

Weigh your options but focus on profitability

By nature anything that is going to make a company more valuable for a sale would make a company more valuable in general, so it’s important to always have that mindset even when not considering selling or even if you may be 10-15 years out from a sale. Having a contingency plan will benefit you in case of a health scare, shift in priorities or other unforeseen circumstance is always a sound strategy. That being said, if you’re not interested in selling, perhaps it’s a family business, or  generational life’s work that has been passed down multiple times, there are other estate planning and succession planning strategies that can be utilized, but largely the same “preparation” measures would apply. 

Build your team of advisors

The sale of a business is not something a business owner can or should take on alone. A great first step after you’ve evaluated all of your other options and have decided that you are ready to sell, is to make yourself familiar with the industry experts. For staffing businesses it would be wise to hire the best attorney and the best accountant for you that have experience in both staffing and M&A. Depending upon how large the business is you may want to also consider hiring an investment banker. Taking referrals from trusted sources and doing your due diligence through this process will ensure that your team of advisors meets your needs and gives you the best opportunity for a successful transaction.

Don’t overlook the qualitative aspects

In discussions of M&A and sales of companies, a majority of the focus is around the accounting and the financials, and rightfully so, but there are other more qualitative aspects that can also hold up the due diligence process in a transaction. The process of a transaction usually takes anywhere from six to eight months once you’ve enlisted the proper help. From preparation, marketing to closing the transaction,  that window should be used for some housekeeping for anything that may stall the process. Are your key personnel under tight employment contracts including non-competes? Are there any major customer contracts that could cause issues with transferability? These questions should be answered and addressed in advance to ensure a smooth process.

Deal-proofing KPIs and benchmarks

The main focus in the transaction process will be on the “numbers”, which include KPIs and benchmarks. The more accurate and informative those figures are,  the easier it will be to get through the quality of earnings (QoE) analysis. Not only is it important to have things in order internally, purchasers will be curious to how your company compares to other similar companies within the industry so you should also be aware of key industry benchmarks that buyers are looking for.  Some of these include:

• Does your company have a solid history of growth
• Does your company have gross margins that are above average in your sector
• What is your annual EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
• What is your overall cash flow
• How sufficient is your working capital
• Are you collecting your receivables within an appropriate industry-standard timeframe

The more your company fits within these industry metrics, the greater the chances are that your valuation will be maximized, and your pool of potential buyers will be larger.