Dave talks to Mikes Ames about the myth that growth means high employee numbers, the importance of ensuring your business serves you, arranging a cash projection flow to kickstart your growth plans, focusing on profitability rather than growth, the 7 steps you need to take to attract buyers and preparing for the recession.
The One Where They Talk About…
- The myth that growth means high employee numbers
- The importance of ensuring your business serves you
- Arranging a cash projection flow to kickstart your growth plans
- Focusing on profitability rather than growth
- The 7 steps you need to take to attract buyers
- Preparing for the recession
In episode 11 of the Talent Matters podcast series – and the last of 2022 – Wave CEO Dave Jenkins talks to Mike Ames, founder of Flair, a recruitment business growth consultancy. Having built and sold two multi-million pound recruitment businesses, Mike possesses a wealth of knowledge on scaling sustainably, what buyers are looking for, and what recruitment business owners need to be doing to prepare for the worst of the recession.
It’s a hugely insightful chat for anyone who owns a recruitment business of any size, digging deep into how to build a successful, scaleable company that is profitable and, eventually, saleable. With the revelation that, in 2021, only 0.2% of recruitment companies ended in a corporate sale, it’s clear that the chances of selling are statistically very slim. Mike shares actionable advice to set your business on a more profitable course, detailing the circumstances that apply to saleable businesses and how to achieve them. The podcast is now live and well worth a listen but we’ve set out the top takeaways so that you don’t have to take notes whilst listening!
Size isn’t everything
The vast majority of recruitment companies employ 10 people or less and many are a 1 or 2 person band. An enduring myth with scaleability is that growth is just about adding more clients, more staff, more revenue. To grow a scaleable businesses you need to retain your shape as you grow – and that’s where most businesses go wrong. First of all, you need to keep your staff happy as that is where growing businesses can lose their way – as they get bigger, they lose sight of their biggest asset, their people. Ditto, your clients – when a company grows quickly without the right support and structure in place, service levels with clients can deteriorate. Lastly, you need to keep profitability up – often companies continue to grow their turnovers, sometimes dramatically, but profits remain small. 8 seems to be the magic number before things can start to drift if the shape isn’t kept. Above 8 employees and you can no longer manage by proximity so you’re in danger of becoming a yo-yo company – quickly growing, then making redundancies, and then going again, and so on. It is all too easy to outgrow management strength, losing shape as you grow.
Your business should serve you
You can measure success in many different ways but the number of employees you have shouldn’t be it. You will have several goals for your business but, ultimately, it has to serve you as the owner. Mike highlights 3 essential boxes that your business must tick:
- Lifestyle – this is a combination of money and time and will differ according to the individual, i.e. how much time and money do you need to give you the lifestyle you want?
- Freedom – when you go to work you should be doing what gives you the biggest kick, what you’re best at, and what will make the biggest impact in your business.
- Wealth – again, this will differ depending on the individual but the goal is to be able to say, when it comes to it, I’ve had enough now but have enough personal assets to keep me happy until I’m 99.
Arrange for a cash flow projection and focus on profitability
Every business owner should engage an IFA, a wealth manager who can do a lifetime cashflow projection to advise how much money you need to be worth by the time you retire and tell you how much you need to invest each year to get there. Once you understand the numbers you can plot the size your business needs to be to do all of that. Then all you need is a simple plan to transition the business from where you are now to where you need to be. What you want is to turn your company into a cash cow lifestyle business and to do that you need to dig deep to maximise profitability, not growth. Focus on productivity, build and maintain a stable team, keep your fees reasonable, and maximise efficiency. Measure profit per employee, fix that and resist the temptation to hire anyone else until you’re at that level or above or you risk yo-yoing from growing too quickly.
Grow and strengthen your niche offering before you expand
When it comes to growing staff and revenue streams, you shouldn’t be asking yourself, ‘can I do that?’ but ‘should I do that?’. You may think that you need to branch out and add other sectors to your offerings but it’s wise to stick to one sector initially and not move too soon to a new sector. Focus on being the go-to company for that sector. The less you do, the more successful you’ll be at it, the more money you’ll make, and the bigger name you’ll have in that space.
7 steps to attracting a big money buyer
- EBITDA (earnings before interest, tax, depreciation, and amortization) of £1m plus.
- Contract over perm – there’s greater longevity in contract and it’s less work for the same fees.
- White collar/professional vacancies – the more senior you place, the more money you’ll make per placement. Launch a new revenue stream to target higher salary, higher fee placements if don’t already have it.
- Secure client estate. Essentially, don’t put all your eggs in 1 basket. If you have just 3 major clients, you will lose a third of your business if 1 leaves so you need a well-balanced client estate made up of a range of different sized companies. What’s important is to build and maintain those client relationships.
- Strong management team
- Low key-person dependence
- Sustainable growth potential
3 ways to prepare for the recession
Unemployment is likely to double to 6%. Businesses that need to hire to operate will continue to recruit staff but those that simply need extra people power to grow will hold off. As a business owner, you need to prepare for the possibility that business will slow dramatically.
- Make sure business is as productive as possible, that your team is stable, well-trained and happy, that your profit per person is on an upward trajectory. You need to be smashing your OKRs and your KPIs, and all activities need to be monitored to ensure you’re getting the right output. There needs to be no inefficiencies.
- Ensure you have cash in the bank. Continue to invest in people and tools but be sensible. Keep on top of debts owed and chase to make sure invoices are paid on time. The ideal is to have 6 times your monthly run rate, e.g. if your costs are £10k a month, you need £60k in the bank. That ensures that you won’t run out of money even if you have no business for 6 months. Of course, it is highly unlikely business will completely freeze, which means you should be safe for 12-18 months, which is when we’ll likely come out of the recession.
- Drill down on clients. On average in a recession companies will use half their normal number of agencies. Be honest and upfront and ask your clients whether you would be one of those clients let go if demand dropped. In a recession, clients can ‘quiet quit’, i.e. just stop giving you work without any communication. You need to get north of that cut.
Look out for and address risks early
Preparation to weather the recession and ensure you emerge on the other side needs to start immediately, not when you’re in the thick of it. As a business owner, it is vital that you are proactive and not reactive – and this may involve a mindset change. Successful business owners have visibility of the future, they are constantly looking for threats and things that need to be mitigated. Knowing or at least predicting what might be coming round the corner allows you to address risks early, giving you a much better chance of overcoming obstacles. In uncertain times, you need to add security as a fourth box to tick on your list to ensure your business serves you.
Strategic business growth is key
In order to grow sustainably and continue to grow through a recession, you need a strategic development function to bring in new clients. Tactical client growth, whereby you approach clients for jobs when you need them, is not sustainable for long-term growth, particularly in such turbulent times. Over the next 18 months strategic business growth will be key.
And finally… we all want to go round to Mike’s for dinner!
Dave asks all his guests what they’d serve up at a dinner party and experimental chef Mike did not disappoint! His menu: Starter – prawns in garlic and chilli, mopped up with crusty bread, plus an alternative melon medley in a balsamic berry sauce. Fish course: sea bass marinated in lemon juice with a light salad. Meat course – leg of lamb on garlic roasted potatoes with green beans and carrots. Dessert – fruit salad, plus lemon drizzle cake with custard. Cheese course – stilton, camembert (both the older the better), goats cheese, crackers and grapes. What a feast!