Some help with a biz plan for a new staffing agency, please!

I am starting a new company, making my business plan, and would like some advice from the pros on 2 things:

1. I am trying to get a good idea of how to value a small to medium sized staffing firm. The best suggestion I have received so far is that a staffing company is generally worth 5-6 times the EBIT.
Can anyone confirm or have another way of calculating?

2. I have heard that roughly 20% of revenue should go to bottom line for profit. Does this sound low, high, or about right?

Thanks!!!

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Permalink Reply by Sandra McCartt on June 27, 2011 at 4:43pm

3X net earnings averaged over 5 years. Play with that one but don't leave the A off of EBITA. Amortization is a big one depending on what you acquire for operations.

Go find a CPA who is certified as business valuation analyst.

For the answer to 2. there are too many different ways of accounting for percentage of profit that you want to show and the reason you want to show it. For tax purposes you want as little profit to hit the bottom line as possible, ie; expense everything you possibly can. For pusposes of borrowing or sale you want as much profit to hit the bottome line as possible.

In short there are too many differences and circumstances that effect value as well as method of accounting, Whether you are an LLC, partnership, C corp or sole practioner to be able to answer your questions. A CPA could run several different scenarios for you or twenty different ones. Too many variables.

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Permalink Reply by Jerry Albright on June 27, 2011 at 5:04pm

@Bill - I'm somewhat unreliable.....been known to disappear for days w/o reporting in to anyone other than my clients......I'd fire myself if I wasn't my best guy. :)

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Permalink Reply by lisa rokusek on June 27, 2011 at 5:15pm

Yeah, using payrolling services may cost money but I have found that the lack of headaches and streamlined processes can really take the pain out of consulting.

Jerry, as usual your "stay close to the money" approach is spot on, in my opinion. Don't worry about having something to sell until you have something to sell.

Instead, just go sell.

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Permalink Reply by Noel Cocca on June 28, 2011 at 11:51am

Wow, this is a great discussion. I agree, get on the phone, line up some clients, and more importantly some candidates and grow as you go in order to make sure you like working for yourself. It is not for everybody I assure you and it sometimes takes a long time to recognize that.

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Permalink Reply by Michael Webb on July 1, 2011 at 2:16am

Yep, started from scratch - blank sheet - no clients and grew it over 8 years then sold. Signed a 2 yr employment agreement then went to court 4 times for breach of contract. DON'T DO IT!!!!!

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Permalink Reply by Al Merrill on July 1, 2011 at 5:16pm

Hi Cody-

If it were me, I wouldn't give, promise, or offer stock in your new company until those individuals have shown you they can "plan the work and work the plan"...your way! They have to show you they can sell themselves, the company, and your new service... your way! You'll save yourself a lot of grief doing this!