How to Sell a Staffing Agency in a Time of High Demand for Labor
The year 2022 brings with it a huge demand for qualified workers.
A combination of factors including the economic reset around the pandemic, the Great Resignation, and a global shift towards remote work, has created a “job seeker’s market.” More businesses are finding it hard to attract and retain great employees, and are turning to staffing agencies as a result.
According to Staffing Industry Analysts (SIA), the U.S. staffing and recruiting industry was projected to grow to $157.4 billion in 2021, representing a 16% gain in value over the prior year. Precision Global Consulting (PGC) notes that salaries and employee demand for remote work flexibility will only increase in 2022, along with the staffing market size. Both suggest why it might be a prime time for you to sell your staffing agency and realize large gains.
If you’re considering how to sell your staffing agency, it’s important to review your assets, the strength of your market presence, and whether you can build substantial value into your business before listing it for sale. An experienced broker can guide you through all aspects of the process.
Factors That Influence the Value of a Staffing Agency
When looking to acquire a staffing agency, buyers often look for specific metrics and signs of operational health, especially for larger corporate services and consulting firms that want to increase their offerings, expand into new areas, and boost their strategic positioning.
Verticals and Industries Served
The more verticals your staffing firm serves, the better. A larger number of verticals represents more business opportunities. Limiting your services to just one or two industries represents more risk for your agency, making it less attractive and valuable in the eyes of buyers.
In addition, certain verticals are seeing high demand for new workers, and it will only help if your agency meets employer needs in those industries.
According to the U.S. Bureau of Labor Statistics, there is a huge positive increase in employment in the healthcare, hospitality, and professional services industries projected between 2020 and 2030. Agencies serving those industries may be poised to see strong profits and achieve higher valuations.
Number and Type of Recruits
Staffing agencies that consistently recruit large numbers of qualified workers will be more valuable to buyers.
Agencies that take on more recruits for temporary placements (as opposed to full-time positions) are also poised to fetch higher valuations. Temp workers are a potential recurring source of business and revenue for an agency, to which buyers are attracted.
Training and Professional Development
Firms that implement training and professional development programs for job seekers can offer higher-quality referrals to employers and become an important differentiator that attracts discerning buyers.
Staffing agencies that operate in areas with lots of healthy economic activity and new business growth are poised to be more profitable, and thus fetch higher valuations, than those in slower-growing areas.
Buyers looking to expand into new territory will keep their eye on staffing agencies in desirable locations.
To further hone in on the value of your agency, a professional broker will apply certain valuation methods and formulas to assess the fair market value of your business.
Valuation Methods for Staffing Agencies
When valuating staffing agencies, brokers employ several methods. Your broker may use several formulas to determine your firm’s value and figure out a range of possible business sale prices.
EBITDA as a Valuation Formula
Larger staffing firms may be valued using EBITDA (earnings before interest, taxes, depreciation, and amortization). EBITDA adds back expenses to total earnings, as the name of the formula suggests.
A multiple is applied to EBITDA to arrive at a value for the business. Staffing agencies can often sell at an EBITDA multiple of between 2x - 4x.
Using SDE for the Valuation
The seller’s discretionary earnings (SDE) is another method that can be applied to smaller staffing firms and employment referral agencies. SDE is based on the following formula:
(Pre-tax, pre-interest earnings) + (vehicles, travel, other transactions listed as business expenses)
SDE adds back business expenses with personal benefit to the owner, such as charitable donations and a yearly salary.
As a broker helps you with valuations, you should know the process for getting your staffing agency in good shape for a sale.
The Process for Selling Your Staffing Agency
If you're thinking about how to sell your staffing agency, start preparing up to a year or more out from when you hope to close the deal, allowing you time to ensure your business is as valuable and attractive as it can be to the best buyers. It will also allow you enough breathing room to make changes that can boost your company’s sale price.
Shore up the Fundamentals of Your Business
Ensure that your management and operations are in top shape. Make sure staff members that liaise with employers are forging strong relationships with your agency, and that trust in your brand is being built. You’ll also want to verify that you’re attracting the best possible talent for job placements.
Continuing to execute a solid marketing strategy, remaining profitable, and expanding your reach will only help you in talking to potential buyers.
Remove Yourself From Daily Operations
A staffing agency that can run smoothly without your constant presence and oversight signals something important to buyers: it will be relatively easy for them to come in and assume the helm.
On the other hand, a business that requires your constant presence and involvement can put off buyers. It signals that a high degree of personal involvement is needed by the owner. A new buyer might reasonably feel they can’t replicate your unique style of management.
Remove yourself from operations as much as you can. One thing that can help is documenting your standard operating procedures (SOPs) for all staff, from management to entry-level personnel, to follow. It can also serve as a management roadmap for the eventual new agency owner.
Do Your Due Diligence
Your due diligence as a seller involves investigating all the legal and financial underpinnings of your business to ensure everything is in working order.
Gather all documents pertaining to finances, including profit and loss (P&L) statements, tax forms, balance sheets, revenue projections, and more to ensure all your accounting is sound. Also, make sure your business has no undue legal exposure that could pose a risk to buyers.
Begin to Engage With Prospective Buyers
Tapping into your network is a good way to start engaging with possible buyers.
Membership in a professional association such as the American Staffing Association, United States Staffing Association, or the National Independent Staffing Association can put you in touch with prospective buyers who both understand the industry, and may be willing to negotiate a fair deal with you as they seek to build their brands.
You can also work with a savvy broker who has industry contacts. They may come with a valuable network you’ll get exclusive access to. Such a broker can keep an eye out for the most qualified offers as they help you improve your selling position and engineer the process to ensure you get the highest possible returns.
Working With a Business Broker Like Raincatcher
It’s smart to work with a broker in the highly-volatile staffing industry as you look to sell your firm. If you’re trying to figure out how to sell a staffing agency, look no further than Raincatcher.
Raincatcher’s brokers have key contacts and unique expertise in the staffing industry. They understand what it takes to make an agency valuable and attractive to today’s buyers, and will work with you one-on-one to build the value of your organization long before the point of sale.