Getting a shareholders’ agreement is a must for recruitment business owners.
Sadly, lockdown pressures have laid bare the dysfunctionalities of lots of relationships, in partnerships with “pre-existing conditions” that weren’t apparent in good times.
In some cases, partners responses to the current circumstances have been wildly different.
One wants to scale down, another wants to start in new markets. As it is in personal partnerships, so too in business partnerships.
The sector as a whole (with some notable exceptions) has been hit hard, and many recruitment business owners are seeing their existing partnerships collapse.
While one may have few outgoings and want to pump energy and money into the business, the other may be going in a different direction.
When I start work with a new client, checking out their current infrastructure is one of the first items on my agenda. That includes legal status, supplier agreements, staff contracts and policies, terms of business and compliance.
What I find is often alarming.
I get it.
Sales people aren’t turned on by this stuff.
- Their focus is deals, when it should be cash.
- Their interests in staff are about keeping them happy in the short term, rather than developing a strong EVP and learning structure.
- Sorting out their contracts is something they will do “one day”.
Clients who say “We’ve never had a problem with it” raise a red flag for me. Because nothing is a problem until it’s a problem.
But…
The best businesses don’t wait until they lose their biggest client over a “fudged” agreement.
The strongest don’t wait until an experienced member of staff is being paid more than she is billing to start managing them and set up a fair performance management process.
They don’t wait to default before they get a grip on their finances.
And the forward-looking owners don’t wait until a crisis to get a shareholders’ agreement.
Because by then it’s too late.
At the very least, a shareholders’ agreement needs to cover:
- How directors are appointed and removed
- An agreed buy-out mechanism and means of valuation
- An independent arbitrator to prevent deadlock
- A mechanism for the death or incapacity of a shareholder
- Non-compete provisions.
So, please take my advice. I’m not a lawyer. I am an expert in building recruitment businesses with strong foundations and a compelling proposition, resulting in robust, sustainable growth. If you’d like to explore how I can advise you as a NED and mentor, please get in touch.
Alison Humphries is a highly experienced MD and NED, with 35 years at the top of the recruitment sector.
She advises directors and owners of recruitment businesses on how to maximise profitability, grow robust businesses and put in place the infrastructure for a profitable business sale.
To talk to Alison about how you might work with her now or in future, please contact Alison Humphries today.
