Mistakes to Avoid When Selling Your Staffing Firm

In the business of mergers and acquisitions, only around 10 % to 20% of companies that go to market complete a transaction. This may be a result of many external factors such as the current market or overall economy. Though the current economic state plays a large role in the undertaking of selling your staffing firm, one of the more important factors that impact a sale is how you decide to prepare for the sale process. Without laying the proper groundwork before seeking acquisition, you may make critical mistakes that could have been easily avoided beforehand.

Any potential issue must be addressed early on to avoid problems that could disrupt the deal process. Through meticulous planning, these issues may be mitigated, but only if you’re aware of the mistakes to look out for during the sale. The most successful M&A deals are those that have been executed with the least risk. In order to lessen these risks, keep in mind the following mistakes to avoid when selling your staffing firm.

Not knowing the value of your staffing firm. Before even going to market, you likely have a figure in mind that you aim to receive for the sale of your firm. There is nothing wrong with pricing your staffing firm the way you best see fit, but it is common for business owners to expect a higher value for their firm than what buyers are willing to pay. Take into account that different acquirers will assign varying values to your staffing firm depending on what they deem acceptable at that moment in time. It’s not unusual for business owners to overshoot the value of their company due to its history and emotional significance. As difficult as it may be to cast aside your emotional attachments to your staffing firm, it is important to develop a full range of accurate values even before beginning the sale process. An objective valuation from a third party is helpful in determining the most accurate amount to ask from buyers. Once you’ve identified an appropriate and accurate valuation for your staffing firm, only then can you address the steps that could lead to  increasing its value.

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Neglecting the day-to-day running of your staffing company. During negotiations and shopping for buyers, stakes run high and emotions can get in the way of running your day to day operations. It may be easy to get caught in the crossfire and excitement during the sale process of your staffing firm, but it is of utmost importance to not let it get in the way of running your business.

If a buyer is interested in your staffing firm because they see potential such as your profit increasing in the next couple of months or having another client hop on board, it is important you stay on top of those expectations and goals. If you take your eye off the ball for too long, it could lead to losing current and potential business which in turn would lower your firm’s valuation. Staying consistent and making sure your staffing firm runs as smoothly as possible is key to ensuring it stays in its prime throughout the sale process.

Not creating competitive pressure. It can be beneficial to begin the sale of your staffing firm with a list of preferred buyers, a few of which may have even shown interest in your firm in the past. Though it might be tempting to jump straight into a deal with an acquirer that is ready to make the purchase, it is important to create a sense of competitive tension by piquing interest from other potential buyers.

It is necessary to speak to multiple buyers and receive a range of offers for your firm. If a potential acquirer senses that they are the only ones with an offer on the table, they could take advantage of your lack of interested buyers and offer you a price lower than what you might have gotten if they felt there was a sense of competition.

Negotiating ineffectively during critical stages of sale. It is critical to stay vigilant and attentive to all details that go into the negotiation process. You’re in a good position to negotiate during the exploratory stage of back and forth conversations with potential buyers, but once a Letter of Intent is signed, the advantage swings towards the buyer. Though an LOI is typically non-binding, it usually stipulates that the seller cannot pursue further leads for a certain exclusivity period. As a staffing firm owner, it is extremely important that the terms of the LOI fit your deal requirements including price, length of the exclusivity period, payment terms and more. Negotiating during this stage is fundamental in ensuring that you get the most lucrative deal possible.

Not considering your staffing firm’s life-after-sale. If you are seeking retirement or a quick exit from your company after its sale, it is imperative that you plan for the firm’s future after your departure. Your firm’s success and potential for growth in the future are big selling points to potential buyers, which means that your systems, service and executive team must be able to perform its best even when you are no longer at the helm of your company. Properly positioning your staffing company for sale is crucial in ensuring you and your company’s future is secure. Thinking about how you can help the company run post-sale can be helpful to both you and your future acquirer, whether or not you plan to stay on after the sale.

While there are a handful of mistakes that you might make during the sale process, keeping these oversights in mind and working with the right team and consultants will help you avoid critical problems during the sale of your staffing firm.

MORE: What you should look for in an M&A advisor

 

Eric Allison

Eric Allison
Eric Allison is managing partner of Golden One Ventures, a boutique M&A firm catering to the middle market for the staffing and recruiting industry. He can be reached at eric (at) goldenoneventures (dot) com.

Eric Allison

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