Ten Proven Ways to Increase the Value of Your Recruitment Business

As a recruitment business owner, you’re likely to consider your exit plan at some point.

Valuing your business is essential to achieving your financial goals. The enterprise value is often calculated by multiplying the annual profits (EBITDA) by a fixed multiple. The average enterprise value/EBITDA multiple reached 6.5x in 2022, according to BDO.

Buyers consider several criteria when purchasing a business, including growth potential, management teams, market sector expertise, top billers, technology and infrastructure, profitability, contractor base, locations, customer concentration, and culture.

Here are ten proven ways to increase your recruitment business value:

1. 1. Growth: Analyse your business’s growth in the last financial year. What is your profitability? What’s your topline growth? Is your trading activity trending upwards? Potential buyers will want to ensure that they’re buying a business that is on an upward trajectory.
   2. Strong Management Teams: Can you demonstrate that your business has a strong management team? What’s the average tenure? What’s the career path? Do you provide leadership development programs? Potential buyers will want to see evidence that the team they’re going to work with are performing at a high level and buy into the company.
   3. Market Sector Expertise: Being able to demonstrate sustained market sector expertise can add significant value. Potential buyers will seek evidence that the business has a strong level of sector knowledge and capability.
   4. Team Billing: Potential buyers will want to see evidence of team billing history, average tenure, and career growth potential. They will also want to see evidence that the billing is evenly spread and not weighted towards one consultant.
   5. Technology and Infrastructure: An advanced recruitment tech stack and clearly defined business processes executed by a highly skilled team increase business confidence. Technology is critical for driving recruitment offerings forward.
   6. Profitability: Potential buyers will be interested in understanding not only the amount of profit, but what the profit represents as a percentage of the overall turnover.
   7. Contractor Base: Contract recruitment provides business with a predictable revenue stream, which, for investors, is more attractive than a business that is 100% focused on perm. To optimise a business valuation firms should focus on driving contract recruitment weighted at least 60/40 to ensure certainty of earnings and better cashflow to increase the multiple.
   8. Locations: BDO stated that 28% of transactions in 2022 involved an overseas buyer (up 8% from 2021), which highlights how buyers are seeking access to new geographic markets. Providing evidence of consistent billing in locations where talent pools are squeezed will make your business more attractive.
   9. Customer Concentration: A balanced and diverse group of customers is paramount to achieving a higher business valuation. Potential buyers look closely at customer concentration. If they deem the concentration to be at risk or vulnerable owing to a high concentration or reliance on one client, the offer received could be much less.|
   10. Culture: A well ingrained business culture will enable the buyer to develop the employee brand proposition with ease. Potential buyers will want to see metrics such as staff turnover, retention rates, training programs, incentives, and benefits packages.

Further reading: How are recruitment agencies valued?