How do you find out how much your staffing agency is worth?
The question of how to price your staffing agency for sale can be tricky. It involves a delicate balance as you analyze the true value of your business. On the one hand, you want to attract the right buyers and discourage lowball offers. On the other hand, you risk leaving money on the table if you price your agency too low.
When thinking about how to price your staffing agency, you’ll need to consider a buyer’s assessment of asset values, financial statements, return on investment, industry-comparable sales figures, and the goodwill value of your business. Many business owners rely on the expertise of a business broker when selling their company. Still, it’s important to know what your business is worth as you get it ready for sale.
Get Your Financial Statements in Order
If you’re working with a business broker, they’re going to have to get both quantitative and qualitative data on your staffing company. Financial records allow you to assess the income-based value of your business.
You should be collecting:
- Balance sheets and income statements for the previous 3 years
- 3 years of tax returns
- Profit and loss statement showing expenses revenue, and profits and losses
- Cash flow statements
- Statements of seller’s discretionary earnings (SDE)
- A list of tangible assets
- A summary of accounts receivable and accounts payable
These are basically the items that you need to begin determining the value of your staffing agency.
Estimate the Value of Your Assets
The book value approach, also known as the balance sheet or tangible assets method, values the business by tallying assets and subtracting liabilities so as to obtain the company’s net worth, or equity. The resulting value is found to be accurate if it reflects the assets’ fair market value. Differences in fair market value and book value require the calculation of “adjusted book value.”
To count up the assets, start by making a list of all your staffing agency’s tangible assets, including equipment, inventory fixtures, and furnishings. Estimate their realistic valuation while considering their age, condition, and acquisition cost. All these values are put together to sum up the liquidation value of your business.
Intangible assets can also boost the value of your staffing agency. These are assets that sit outside of the financial statements and physical things you own. Examples of intangible assets to consider include:
- Systems and processes that are better than the industry average
- Client relationships
- Supplier relationships
- Your distribution network
- Cost of capital advantages
Estimate the Value Using the Multiplier Method
The multiplier method uses key financial metrics—typically revenue and earnings—to determine the value of a business. This figure is then adjusted based on various factors that may change the sale price. These factors include geography, industry, and individual business characteristics. The multiplier used to arrive at the estimated value of your staffing agency is based on the industry’s average sales figures as well as key areas affecting the future of your business, such as client base, revenue and profit trends, or position in the industry.
Earnings multiples typically range from 1 to 5 times the annual cash flow or discretionary earnings. A report by Staffing Industry Analysts found that staffing company buyers paid 5 times EBITDA, or earnings before interest, taxes, depreciation, and amortization, in 2021 and 2022. So, if your staffing business’ EBITDA is $1 million and a buyer uses a multiple of 5x, the value attributed to the company is $5 million.
Determine Value Based on Market Approach
Conducting comparable research can also help you settle on the value of your staffing agency. This method of business valuation is based on the sales and purchases of similar businesses in your market area. When comparing your company to others that have recently sold, consider if yours is similar in size, services, or features.
However, the market approach method of business valuation can be tricky because few companies are publicly traded, so transaction details are often kept private. Most experts agree that a valuation based on income and assets is best when considering how to price your staffing agency.
Be Prepared to Justify the Price You’ve Settled On
Potential buyers will want to know how you arrived at the asking price for your business. If your staffing agency, for example, has $1 million in pre-tax earnings and you’re asking for $5 million, you should be able to provide your reasoning for wanting five times your earnings.
This is where your business broker will help you highlight the characteristics of your company that make it worth the price.
These include:
- Reliability of future profitability
- Historic sales and profitability
- Higher profit margins compared to the industry average
- Lack of reliance on one or few clients
- Desirable customer base
- Niche market or competitive advantage
- Experienced management team
- A clean balance sheet with strong ratios
- Growth or expansion opportunities
Ideally, you’ll want to prepare your staffing agency for sale and address issues that buyers could use to justify a lower price offer.
What is My Business Worth? Get a Business Valuation by Lonnie Veasley
If you’re planning to sell your staffing agency, call Lonnie Veasley today for professional advice. Lonnie has vast experience in staffing business valuation and can help you appraise your business and assets to arrive at the best value for your company. What’s more, he can help you get your agency ready for sale and handle every aspect of the selling process.
Call (727) 238-4074 today for a business valuation.
