To Be, or Not To Be, That is The BIG Question
An interesting question was asked of me the other day as we rounded up after the end of financial year results, which I am pleased to say were another record by any measure in terms of revenue and profit growth, number of Licensees, brand awareness to name a few.
Some background, mid last year we had been speaking with a Technology recruiter who had worked as both, an agency recruiter as well as an in-house talent resource and then as a manager at a large global tech company. He and his relatively small team of 5 was expected to recruit hundreds of technology professionals.
In his operational management role, he was earning about $120,000, bonuses had not been paid for 2 years. even though they had enjoyed a good level of success.
In his most recent agency role prior to this position he had billed about $250,000 on a base of circa $70k, so the in-house role was better paid.
In May of last year after a review of the market he decided to stay in his internal role rather than go out on his own or returning to the agency world, sighting job stability, given a young family and a few years of service under his belt. He was expecting loyalty. Unfortunately, his position was made redundant in November and since then he has been doing bits and pieces as he assessed his options.
The question I was asked was how he would have fared as a Tanner Menzies Licensee had he taken that direction.
Let’s look at the facts, there is a severe shortage of talent in the technology space. Recruiters are scrambling to place at historical levels given the lack of candidates. A number of mergers/takeovers have occurred, and company structures are being streamlined. The desperation to make placements has led to some fee cutting which is extraordinary, everything is volatile and more.
Let’s assume that, from starting out in May our new Licensee started slowly but then after month 3 started billing at one $20k placement a month for 10 months with a total billing of $200k (these are the sort of numbers you can expect and then significant growth in year two and beyond).
This new business owner would get a flying start because basically the model is in place. One just needs an ABN and you are off and running, pretty much all you need, except the new owner who brings it all together.
To put it simply the owner of a Tanner Menzies License receives 80% of everything they bill. Even the fees are collected and distributed by corporate. You get on with what you do best, recruitment. Let’s further assume it costs another 20% to run your business resulting in your net return being 60% of everything you bill.
On $200k you receive a minimum of $140,000 and these numbers grow exponentially as revenue does. Additionally, it is your business so let’s be conservative and say you pay yourself just $5k per month or $60k a year as you get thing moving, then profit would be $80k.
This is the industry accepted basis upon which company value is calculated, so in year one your equity using the formulas of 2-3 times EBIT, your equity component is $80-240K (not that you would divest after year 1!)
Fair to say the conservative result after year 1 is very impressive. If you would like to hear more or would like the numbers clarified please call Peter Gleeson, Ian Stacy, or Peter Tanner (03) 9190 8904 or visit tannermenzies.net.au
In the meantime, I think its time for a catch up over coffee to discuss the year that was!