Owners of staffing firms call me each week saying something like this: “I fell in to this business. After working as a recruiter for someone else, I just decided I could start my own firm and hang a shingle outside an office. Eventually I got pretty good at it and now I’ve got a nice little $5 million business. But I want to grow it for eventual sale, and I’m not sure how to get there.”
Staffing is a simple business model for which barriers to entry are low. We put people in jobs. We get as many job orders as possible and fill as many as we can, and bam, we’re making money. Wash, rinse, and repeat each week, each month, each year – and before we know it, we’re making a nice living.
The problem is, one day we wake up and think, “I don’t want to be working forever.” We start to think about how to get more blood out of this turnip for an eventual sale. It’s at this point that having a solid growth plan becomes essential.
Before developing your strategy, you must first understand the five key factors that make a staffing firm attractive to buyers:
- Industry sector (professional & niche firms are generally more attractive than commercial/generalist firms)
- Size (bigger is better, as is more offices)
- Margins at or above industry averages (mid-20s for contract, high teens for clerical or LI)
- Business mix (more contract than direct hire and a diversified portfolio of accounts)
- An ability to function well in the absence of the owner
Next, evaluate your firm against these criteria. An honest evaluation is important, and it may be appropriate to get outside help with an initial assessment. Once this process is complete, you’re in a position to put together a growth plan that strengthens your position in each of the criteria.
But your work doesn’t stop here. Consider your personal objectives, stage of life, and how long you anticipate working.
Then answer these questions:
- Do I want to maintain a boutique, high-margin local player and potentially sacrifice top line growth, or do I want to aggressively grow my firm? If the latter, do I need to consider acquisitions to get there?
- Should I exploit a particular niche, skill, or industry we are already good at, or adopt a more generalist model?
- If the business is too dependent on me today, what is my succession plan?
Asking yourself these questions is critical for increasing the value of your firm and taking the necessary steps to grow. Now, you’re ready to put a plan together that’s aligned with what you want and what buyers of staffing firms look for as an investment. Ultimately, you’ll end up balancing your personal goals while making your firm attractive to future buyers.