What are some factors to consider when approaching an exit or a sale of your business?
As Shakespeare’s famous adage goes, “parting is such sweet sorrow.” However, when selling your business, there’s more preparation involved just sneaking into a royal courtyard by nightfall. Velocity Co-Founder and Chief Operations Officer, Kurt Wells, weighs in on the vital signs that staffing professionals need to review when analyzing, and possibly accepting, a bid for their company’s legacy.
Although every staffing company is different, there are a few signs that could indicate a business is “exit ready.” Below are six important considerations to have implemented before pursuing the sale of your staffing company, as described by Kurt Wells.
1. The business has solid advisors who understand their business and its complexity, while being specific to the staffing industry.
Firm owners understand who their likely buyers are, but they may not have met them yet. Although business owners may not prefer outside influence initially, investments in advisor relationships are vital to strengthening one’s business during the growth process and beyond. Discussions with an advisor about the best practices for a business exit or partnership have educational and financial returns for the owner, who gains a better understanding of pros and cons when entering an opportunity. Aside from the added perspective, the owner also expands their professional network and the reach of their services, even if they aren’t planning to sell.
2. An owner has thought about the options of exit: go public, sell to a strategic buyer, or sell directly to the firm’s management team.
Before completing a sale, owners need to recognize the long-term trajectories of their company with new ownership. Will the company endure a culture shock during an acquisition? Will the existing management team be able to provide services at or above their current quality without the owner’s consistent guidance/feedback? Being on track for an exit is not enough; a staffing firm owner has to be equipped to transition to the necessary organizational frameworks, etc.
3. A firm understands the strategic attributes of their business so that acquirers or investors will find what’s most attractive in the business.
If you cannot articulate what makes your company unique and valuable, then how will an outsider be able to identify that? You and your employees are constant brand ambassadors for your organization, representing its values, goals, and mission. Staffing owners should complement their own brand and provide meaningful contributions to clients/employees, setting a standard of workplace excellence. An owner understands how buyers will value their business, and an owner has been carefully measuring the right valuation metrics for some period. Offers don’t simply pile in overnight, but rather are the result of owners who have strategically positioned their company to attract the right attention with high-impact results.
4. The firm has a financial model for the business that is updated regularly (monthly, quarterly, annually).
If owners want to see realistic results, then the results need to be positive over a designated course of time, demonstrating solid revenue and profitability. A business can experience an initial boom or seasonal uptake, but the true measurement of success comes from long-term gains, which require ongoing evaluation and strategic adjustments. An Olympian doesn’t win gold without preparation and in-depth awareness. Before and during a buying proposal, all parties want to see a promising track-record of resilience and adaptability.
5. The firm has the appropriate succession plan in place
A strong 2nd tier management needs to be in place to run and deliver on the firm’s mission and operations, however taking the reins isn’t a simple, one-step procedure. At times, it can take years to refine a well-oiled machine that spans all sectors of your company: HR, Payroll, Financial, Marketing, Operational, and so forth. While hiring candidates, mindful employers will identify potential early on and harness this talent for long-term organizational objectives. You got your business this far; you don’t deserve to see it fall apart.
6. The owner also understands what exiting the business means: personally, professionally, emotionally.
When contemplating an offer, head and heart can come into conflict. In a family-owned business, will the new responsibilities cause tensions among relatives? What will the owner’s future role and/or commitment be to the business? How might an owner share the proceeds? When the daily commitment suddenly disappears, to who and to what will you give your time and energy? Many grappling decisions will need to be considered and reviewed because not every offer is the offer for you. Meanwhile, all an owner can do is excel until their business is presented with the right opportunity at the right time.
If you’re a staffing company owner, you’re accustomed to having a lot on your plate, and a business exit may seem like a distant dream. However, whether you want to grow independently or sell for a large margin, having the above measures in place will prepare you to always capitalize on opportunity and to consistently play your best hand.