Getting Your Business ‘Exit Ready’ for a Sale

January 13, 2023 – Scaling and creating a recruitment business which is attractive to investors or potential buyers is one of the most challenging areas for most entrepreneurs in recruitment. For many entrepreneurs, the end goal is to ultimately scale and exit the business they have built. Some believe that the business is ready for an exit as soon as it becomes profitable. But profit is only one component of the many things potential buyers will be looking for, says James Caan in a new report from Recruitment Entrepreneur International. “Even a profitable business can suffer from pricing issues or sales falling through without these other components in place,” he said. “A buyer’s lawyer will do everything they can to identify potential issues in the business, often with the goal of driving the price down.”

“I’m now regarded as a successful entrepreneur but when I built up my first recruitment agency, I made the same mistake,” said Mr. Caan. “The business had hit $3 million profit, so I believed it was ready to sell. A friend in corporate finance did a detailed review of my recruitment agency and, to my surprise, he concluded the business wasn’t saleable – because we had only focused on sales and profitability.”

You may be wondering right now whether your business is ready to exit. Committing to what can be a long and costly 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 aim for from the beginning – it’s never too early to start building towards an exit strategy. If you have clear processes and governance in place, alongside a strategy for scaling, you’ll be much better equipped for the future.

Recruitment Entrepreneur International is a private equity firm with 30-plus recruitment companies in its portfolio, covering numerous recruitment sectors, at various stages of growth. Founded by international businessman James Caan CBE it provides talented individuals with funding, best-in-class operational infrastructure, coaching, and management advice. Its success lies in its ability to provide the knowledge and hands-on know-how to help start-ups and scale-ups grow, scale, and materially increase profit – ensuring that its portfolio partners can achieve a high equity value on exit.

“It’s a good idea to start gathering key documents and information on your business at least one to three years beforehand,” said Mr. Caan. “Once you understand exactly what a buyer is looking for, you’re building in time and space to fully review this information for any errors or problems that a buyer may notice – and this enables you to refine and amend in order to maximize the value of your business in a potential sale.”

Related: Retaining Your Employees During the Great Resignation

2. What do buyers look for?

When assessing value creation within your business you need to think like a buyer, not a seller. Why should they buy your business rather than another? Some factors a buyer may take into consideration include the talent currently present in your business, the strength of your infrastructure, internal processes and governance, and what 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 Recruitment Business
What makes one recruitment business more attractive to an investor than another? Investors have their own strategic agenda; they may seek to invest in a particular sector or region and will measure value in their own unique way. But a “buyer’s” checklist will always be built on key principles.

It’s important to focus inward first; your aim is to build a comprehensively structured business that holds value – not just in terms of income and profit but across all areas of the business, according to a new report from Recruitment Entrepreneur International’s James Caan. “The strength, depth and resilience of a business’ infrastructure, governance and internal processes is integral to its value – so strengthening all elements of a recruitment business immediately diversifies the potential buyer portfolio,” he said.

“The recruitment sector is often difficult to predict so buyers will be looking for businesses with a sensible, credible and robust business strategy,” said Mr. Caan. “This can include having a diverse and consistent customer base, sustainable positions, and a steady revenue stream.”

3. How do you get “exit ready”?

Achieving a successful exit has several key steps, says Mr. Caan. You need a clear record of good business practice, ideally showing you have delivered at least three years of consistent development and growth. Ways to demonstrate this include showing that the business has delivered on its plan and achieved targets. “Buyers will want to see a balanced spread of revenue across customers with none representing more than 10 percent of the total income and comprehensive reporting on financials, metrics, balance sheets, and detailed budgets,” he said. “They are also likely to want to see that you have delivered quality corporate governance with a clear understanding of risk, controls, regulations, and compliance.”

Another important element is being able to evidence 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 remit,” Mr. Caan said. “Buyers will want to see good staff tenure and long-term commitment to the business, as well as a history of attracting and retaining talent.”

Related: Hiring Top Talent in Unprecedented Times

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media