There are many different reasons why you might need to value a recruitment business. Although it sounds like a reasonably simple task, businesses have a lot of different parts and can be pretty complex. This means working out their value might involve a lot of calculation and research. 

This article will guide you through the business valuation process and include a few tips specific to valuing a recruitment business. We’ll cover a variety of different topics, including:

  • Defining business valuation
  • Reasons to value a recruitment business
  • How to value a recruitment business
  • How Countingup can help you value a recruitment business

Defining business valuation

Business valuation is the process of working out how much a business is worth. There are a lot of different reasons you might value your business — you might be selling it, or trying to demonstrate its growth to potential investors.

It’s important to ensure you’re not undervaluing your business, as this may mean you’ll not receive appropriate compensation if you sell it. It’s just as important not to overstate the value of your business either. If you do this while presenting your business to investors, they may receive less of a return on their investment than expected, which can damage your relationship with them.

Reasons to value a recruitment business 

Selling your business

Selling your business is one of the most common reasons to perform a valuation. You would need to do this before offering your business for sale, so that you can give an accurate price to potential buyers.

If you’re looking to sell your recruitment agency, it’s essential that you inform all your clients about the change in ownership. If you have any ongoing contracts to provide temporary workers, or have candidates going through an interview process, it may be a better idea to postpone the sale until you complete these processes.

Finding investors

In order to find the right investors for your business, you’ll need to perform a business valuation. This is because one of the methods for valuing a business is to calculate its earnings over time, which is essential info for an investor. 

The business valuation will also inform the investor how much they’ll need to invest. For instance, if your business has a low value but a high potential for growth, it may need a substantial investment to buy the assets it needs. 

Establishing a partnership 

 Part of the contract for a business partnership will be the value of the business, as this figure is important for deciding how much of the business each partner owns. It’s more common to establish a business as a partnership, but if you receive a partnership offer once the company is running, you’ll need to perform a valuation to make sure you split ownership equally.

How to value a recruitment business

There are a few different ways of valuing a business. Some rely on complicated mathematics, and others add value from things like your business’s location and strategic value. These are known as intangible assets, as they increase the worth of your business but cannot be reduced to a cash value easily.

 It’s important to add value for things you cannot put into numbers, like your company’s reputation or relationships with clients, but this can be difficult without considerable expertise. As such, we’ve chosen to look at two simpler methods of calculating your recruitment company’s value below.

Value of assets 

The first method is to list and value all of your business assets. ‘Asset’ is a broad term, referring to anything you own or lease that helps you run your company. In a recruitment business, this might include the computers you use and the offices you operate out of. Once you’ve worked out how much all of your assets are worth, you’ll also need to subtract any debts from the total.

Business revenue

Cash flow is a term for how money moves through your company. To see your recruitment company’s cash flow, you need to determine how much money your business makes in a certain period and how much it spends.

To value your business using its revenue, you’ll need to create a cash flow forecast. This document looks at the same data as a regular cash flow — your incoming and outgoing cash — but tries to predict what they will be in the future instead of the past or present.  

You can base a cash flow forecast on the cash flow records of previous months or years, so start there and make changes based on any upcoming events. For instance, you may be expecting lower income for a while because a number of your clients are leaving. 

This is a better valuation method for a recruitment business because a recruitment business doesn’t need a lot of equipment to function, so simply valuing assets might not give an accurate idea of what the company is worth.