How much is your staffing firm REALLY worth?

Transcription

1 How much is your staffing firm REALLY worth? PRESENTED BY Tom Kosnik of the Visus Group Q: What is the one topic that EVERY business owner is interested in? A: The VALUE of their business! Why? Simple Answer(s)! Because I am not working for naught Because I have an end-of-career financial goal Because I want to be financially secure in my old age Because I may, at some point, sell my business

2 Understanding How a staffing company is valued AND How to build value in a staffing company Is critical to your personal long-term financial plan & success! Today s AGENDA Understanding how a staffing company is valued How to increase the value of your business Some general advice Questions and answers Part I 1. Multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) 2. Percentage of Gross Profit

3 Valuations: What do you need to know? Valuing a company is more of an art than a science There are market valuations There are textbook valuations Valuations quickly go out of date Multiple of EBITDA Methodology = Trailing Twelve Months (TTM) Add add backs to the financial statement Assigning a multiple to the generated EBITDA depending upon a handful of key variables Multiple of EBITDA Trailing Twelve Months (TTM) It s fairly simple; we take the financial statement, where it stands today, and look back over the course of twelve months. What are we looking for? What is the TTM gross margin percentage? Is revenue and gross margin increasing, decreasing or staying the same? Any excessive line items? Are employee costs in line or out of line with industry standards?

4 Multiple of EBITDA Add add backs to the financial statement What is considered an add back? Excessive owner s compensation Cars A second home or boat What is not considered an add back? Savings due to a back office integration Savings due to combining physical office locations Savings due to a getting rid of a factoring relationship Percentage of Gross Profit Methodology = Trailing Twelve Months Add add backs to the bottom line Assign a percentage to the generated Gross Profit depending upon a handful of key variables Percentage of Gross Profit Why a percentage of generated gross profit? Some companies will be generating a gross profit with very little EBITDA. This does not mean that the company has little to no value. There is value in the business. What percentage is assigned? In part, based on the key variables In part, based on a mathematical formula

5 Part II The question here is: What are the handful of key variables that add value to your business? Variable #1: Gross Margin Gross Margin = percentage Gross Profit = a dollar number What Gross Margins are desirable? LI 18% to 19% Clerical 20% or greater IT 28% to 32% Eng. 22% to 24% Variable #2: Client Concentration Here is the guideline No more than 10% to 15% of revenue coming from one client!

6 Variable #3: Industries being serviced Are they on the rise or on the decline? Are they the future or the past? Are they sexy or unattractive? Variable #4: Owner Involvement Is the owner critical to the day-to-day sales or recruiting function of the business? If yes, this is not desirable. Variable #5: Management in Place Are managers in the business running the day-to-day functions of the business?

7 Variable #6: Sales Execs & Recruiters Will the company s key sales executives or high production recruiters go along with the acquisition? Variable #7: Non-competes and Non-solicitations Does your business have such documents in place? How strong are they? Variable #8: Staff in General Is your staff newbie s or experienced? What is your company s turnover rate with existing employees?

8 Variable #9: Temporaries or Contractors 1099s = not desirable W2 hourly = desirable Corp-to-corp s, not so much of a big deal How fast are you turning your temporaries or contractors? Two weeks or two years? Variable #10: Multiple Office Locations One office location = not all that exciting Three to five office locations = much more desirable Six plus office locations and you are well on the way! Don t forget The Little Things Intuition

9 Part III Some general advice 1. Manage your business from the mind of a potential buyer. 2. What can I do in my business that will reduce the risk to a potential buyer? 3. What can I do in my business that will increase the emotional desire to acquire my business? 4. Get your financial statements in order! That means in line with industry standards. 5. Start with the end in mind! 6. Put a PLAN in place with goals and action items. Questions? Tom Kosnik Visus Inc. 25 East Washington Street Suite 1462 Chicago IL tkosnik@visusgroup.com Next Lunch with Haley: Staffing Marketing Campaign Show & Tell Tuesday, June 19, 2 p.m. EDT