How to Sell a Staffing Agency
Last Updated January 30, 2024
The time has come where you feel ready to sell your staffing agency. You’ve met (or exceeded) your goals, feel accomplished in helping match jobseekers with the right employers, and are excited to turn your business into a significant profit.
But selling a business can be an intimidating process, especially if you have no experience doing so. Before selling your staffing company, it’s important to understand the current market demand for staffing agencies, the value of your company, and the steps of selling a business.
Current Market for Staffing Agencies
Post-COVID trends such as “The Great Resignation” and “Quiet Quitting”, along with more recently, mass layoffs, have made for a unique time to be in the staffing industry.
According to U.S. Risk, LLC, these trends have caused a marked increase in demand for staffing agencies, which is expected to continue throughout 2023. Additionally, the market size of the employment and recruiting industry has risen 3.6% per year from 2018-2023.
Because of this growing demand, it’s pivotal to put the proper price tag on your business to ensure you aren’t selling your staffing agency at the wrong time.
Five Factors That Can Determine a Staffing Company’s Worth
You deserve to get the absolute most out of the business that you spent long hours building from the ground-up, so before learning the five factors that can help you create a valuation for your staffing agency, confirm you’ve taken a look into all measures or financing methods that could grow your business.
Location
Your staffing agency’s home-base can play a significant role in determining its value. A business located in an economically healthy, fast-growing city is appealing. Businesses located in cities that have various industries playing a role in the economy, rather than being overly reliant on one industry, also presents less risk for potential buyers.
A professional broker can also assist you through applying certain valuation methods and formulas with this step, though aim to find a trusted broker from your business network.
Number of Industries Served
As mentioned, a business that presents as little risk as possible is important in the eyes of potential buyers.
Staffing multiple industries is an indicator of lessened risk, while a staffing agency limited to serving just one industry presents greater risk since it has a less diversified client portfolio. If you’re serving a wide array of industries, that can drastically increase the value of your company.
Certain industries are seeing higher demand in 2023 than others. The U.S. Bureau of Labor Statistics offers key insight into employment by major industry sectors along with projections for where those industries are headed.
Serving areas either currently in high demand or with substantial potential for growth will make your staffing agency more valuable.
Trainings and Professional Development Resources Offered
Offering employee training and professional development opportunities shows you’ve invested in your staff and have well-trained workers. Having professional development programs in place for job seekers can also lead to higher quality referrals to employers, distinguishing your agency from others while attracting judicious buyers.
How Reliant is Your Business on You, the Owner?
Being the only person aware of how to run big-picture operations can be off-putting to someone looking to purchase a business. How will operations continue as normal if there’s nobody at the helm capable of successfully overseeing business operations? What happens to your receivables after selling your company? If a staffing agency’s past and future success hinges on the person who would be leaving the business, that will be taken into account when creating a business valuation.
Contrarily, if you have a team or board of directors capable of keeping day-to-day processes running smoothly no matter who owns the agency, it can put potential buyers’ minds at ease.
Metrics
Business valuation methods that measure metrics such as cash profit and sellers’ discretionary earnings are necessary when looking to sell your staffing agency, along with understanding terms such as Total Cost of Ownership (TCO).
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), shows cash profit generated by a business’ operations. EBITDA is typically used by businesses over $1,000,000 in gross annual sales.
There are multiple ways to calculate EBITDA:
Net Income + Interest Expenses + Taxes + Depreciation + Amortization = EBITDA
or
Operating Income + Depreciation + Amortization = EBITDA
SDE
SDE (Seller’s Discretionary Earnings) is defined by the International Business Brokers Association (IBBA) as, “the earnings of a business prior to income taxes, depreciation, amortization, interest, non-operating income and expenses, nonrecurring income and expenses, and one owner’s entire compensation.”
SDE measures total cash flow available to the potential buyer and is commonly used in mergers and acquisitions to value a company. SDE is typically the preferred business valuation method for small companies (<$1,000,000 in gross revenue) as this formula adds back the owner’s salary to net income.
Profit on Income Taxes + Non-Recurring Expenses – Non-Recurring Income + Non-Operating Expenses – Non-Operating Income + Depreciation + Amortization + Interest Expense + One Owner’s Total Compensation = SDE
Find the Right Buyer at the Right Time
While the value of your assets is vital in determining purchase price for your business, overall financial performance and stability can be equally important — and timing is key. If you’re losing customers or suffering from cash flow problems, you’re probably not in the best position to sell your staffing agency.
Rather, a period in which an agency has consistent cash flow with good working capital and a growing portfolio would be the best time to sell.
Below are some additional tips to consider when looking for a potential buyer:
- Plan well in advance of when you would like to sell your staffing agency (up to one year).
- Keep your accounts receivables in order.
- Keep as much working capital as possible.
- Utilize your existing network and relationships.
How to Sell Your Staffing Agency
Before Selling
A serious amount of planning is required to sell a business. In addition to calculating your organization’s metrics and putting a price tag on your agency, you should prepare clearly defined goals, needs, and wants for your staffing agency with your board or team of advisors.
Aspects or goals to consider include:
- Deal structure
- Employee retention post-close
- Tax planning
- Cash flow planning post-close
- Brand continuity
Determine if you want to sell 100% of your company at closing and leave with cash in hand, or if you want to keep working and sell just a portion of your business. Keep in mind that with new ownership, the brand you’ve created could change; if you value your staffing agency’s brand and how it’s managed post-close, take into account who you might be selling to and consider that in your deal structure goals and planning.
While Selling
Selling a business can take time, typically 3-12 months. Try to be patient in waiting for the right deal; however, move quickly when possible. Changes inside the business, such as departure of influential employees or reduced working capital, or changes outside of the business, such as drastic industry shifts, can negatively impact potential deals.
Take advantage of your professional relationships and reach out to those in your network, too. Maybe you know someone who knows someone looking for a staffing agency for sale.
It’s natural to want to be as forthcoming as possible when putting a business up for sale. However, you and your advisory team must keep highly confidential information concealed.
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Not Ready to Sell Your Staffing Agency? Improving Cash Flow Can Grow Your Business
If you’ve decided you aren’t ready to sell your staffing agency, improving cash flow can help grow your business to reach a point at which you’re more comfortable selling.
Invoice Factoring for Staffing Agencies
One popular alternative financing method staffing companies particularly use to improve cash flow is invoice factoring (often referred to as “payroll funding”).
Through invoice factoring, staffing agencies sell off unpaid customer invoices to factoring companies, which then provide a cash advance until the debtor pays off the outstanding invoice. Once the invoice is paid, the factor supplies the remainder of the invoice value to the business, minus a small factoring fee. This process helps companies keep consistent working capital available rather than struggling to deal with late invoice payments.
If you think invoice factoring for your staffing company is a better solution than selling at this time, give altLINE a call at +1 (205) 607-0811.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
