When you run a lifestyle business it can sometimes feel like you are running hard but getting nowhere. You feel like you will be stuck doing it for the rest of your life. Like the line in Hotel California “You can check out any time you like but you can never leave”.
But that equity value is based on rules for larger businesses. Those rules are thing like business size, growth, sustainability, quality of earnings, and the risk of future earnings being achieved. For lifestyle businesses, valuations are usually calculated differently than those for larger, more robust recruitment agencies.
Wealth creation for owners of lifestyle businesses should be focussed on an accumulation of returns from the business over time, rather than relying on a windfall at exit. As an aside, this should be the goal of all business owners, but that is a topic for another day.
So how do you maximise the exit value for your lifestyle business? First, to be attractive to a buyer you should stand for something in the market and be deep in your niche. You should operate ethically, you should build your brand and reputation. Longevity and consistency are prized.
Try to avoid being average in your business. Be efficient in revenue generation. Avoid inefficient contingent opportunities. Build recurring revenue. Don’t be cheap – quality services should be rewarded in placement fees and contract margins.
A founder is usually looking to leave the business on sale, heading off to do something new, so always try to make your role as limited as possible. It will be a smaller exit value if you’re still key to all aspects of the business.
Core activity like business development, client relationships, and revenue generation need to be delegated, as much as possible, from the founder.
Critical tasks such as Payroll and BAS need to be “destressed” from the owner. For smaller businesses it is inefficient, expensive and riskly to have quality in-house resources. Outsourcing solves this but also has the benefit of a “plug-and-play” solution for the incoming owner. A new owner might fold you into their own back-office systems, or they might keep yours, the main things to focus on are flexibility and robustness. Make it easy for them to understand and have confidence in how you operate. Each aspect of your business operations will build to an overall confidence in what they are buying, so try to avoid yellow flags.
The best lifestyle businesses are run in a manner where costs are minimised and as much as possible variable, where complexity is removed, and compliance is embraced as a competitive advantage. Partnering with specialists allows this to be achieved.
Middle Office assists recruitment agencies by providing a quality contractor payroll service. We also have deep experience in structuring the whole back-office function for performance and efficiency. We can recommend and work with quality vendors in funding, HR advisory and Bookkeeping to provide a total solution.
Photo by Austin Chan on Unsplash
Rod is a 40-year veteran of Australian and international IT and corporate advisory organisations. His executive-level credentials traverse many segments of the staffing and recruitment industry and include corporate advisory assignments, mergers and acquisitions mandates, and advisory to multinational and other public and private organisations. Located in Perth, Rod provides local industry acumen and global knowledge to recruitment agencies internationally.