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We see the word sustainable used a lot but what does it mean?
When HHMC assesses a small to medium recruitment business it can be simply described as looking for the risk of single points of failure now or in the near future.
In smaller enterprises, this single point of weakness often stems from dependence on shareholders. These shareholders commonly serve as the primary drivers of revenue, maintain client connections, oversee team performance, and provide funding for the business.
If the circumstances of these shareholders change due to personal or business reasons, the risk to the business is clear. It's not an "engine" that will keep running; rather, it lacks sustainability. As a general guideline, any business with fewer than 4-6 team members would not qualify as sustainable. Expanding on this notion, a business division comprising less than 4-6 individuals cannot be deemed a sustainable component or branch within the broader business structure.
We also consider the age of a business. The recruitment industry has many businesses that start brightly but fail to sustain initial performance. A business that is less than 3-5 years old has usually not fully proven its longevity and its ability to handle growth, industry, personnel, financial and economic changes.
As a business grows and more staff are involved, the risk of individuals impacting the business reduces. However, there are many aspects to a business that still need assessment. We have previously described the value of a business as the risk associated with earning future profits.
Items to consider include:
- Who holds the client relationships?
- Who is responsible for generating sales?
- Who is responsible for generating revenue?
- Is the revenue reliant on continued sales (as is the case for Perm Recruitment)
- Does the company have a “brand” that is bigger than the founding shareholders?
- Is the client base likely to change its procurement methods?
- Does a lot of revenue or profit come from one or a few clients?
- What would happen if key staff or key clients left?
- Are the systems and processes manually held together?
- Is the funding dependent on the shareholders?
- Is there a strategy that can be articulated and is being executed?
A sustainable business encompasses far more than just its size; it embodies a holistic set of characteristics that contribute to its long-term viability. This can include, as you would expect, the quality of the leadership team, productivity and performance metrics, and quality of relationship with clients and candidates.
For example, adopting a business-to-business approach when dealing with clients fosters stronger relationships and provides the groundwork for enduring partnerships that can withstand economic and personnel fluctuations.
An external review of your business can bring focus on sustainability issues that are sometimes difficult to see from day-to-day activity.
HHMC Global operates within the staffing and recruitment industry on equity transactions, market valuations and business growth advisory. Contact us to discuss further.
