Baby boomers that are business owners in the recruitment industry have some big decisions to make in the next year or two.
The industry conditions that allowed them to grow and create wealth in the nineties and early part of the new century have changed. Insourcing, reduced margins, massive increases in regulation, a re-emphasis on acquiring new clients, and increased investment in technology and social media are just some of the reasons profits are down and stress levels are up.
And then there are the current economic conditions.
Surely it is better to retire gracefully now and let the next generation find their way in this revised industry?
This is not so easy. Industry veterans who own their business need to sell that business to enable a smooth transition into retirement.
Recruitment businesses can be tricky to sell at the best of times. A previous article from HHMC explores valuation issues in some detail.
Many businesses face sustainability issues, with the value of the business wrapped up in the personal relationships of the departing owner.
The economic downturn was a quick-fire MBA education for many potential buyers. They now understand risk much more clearly and are more cautious than ever.
Related: Are baby boomers preventing recruitment industry rejuvenation?
Buyers are very quick to mark down companies that have future earnings risk such as the lack of a sales culture, poor client agreements, or too much revenue from critical clients or critical consultants. They are also seeking proof of investment in the new regulatory environment and up-to-date marketing and sales infrastructure and techniques.
This risk averse attitude is resulting in some sales being completed at a lower multiple of profit.
Often, there is a disconnect between a buyer's valuation and seller's expectations. When this happens the buyer has options - they can seek a different purchase target or continue to grow organically. The seller has fewer options.
Is this the perfect storm for these mature age business owners seeking to exit the industry? The RIB Report shows that, on average, profits have consistently fallen for the past two years just when there are big strategy calls to be made and investments are required.
Recruitment agency owners need a clear understanding of their business value in today's market and an understanding of risks as perceived by buyers.
HHMC's external review is a good start to understand your options. You need to recognise where your business has value and what changes are required to raise equity value.
