Selling your marketing, public relations or advertising agency can be stressful, especially if you’re not sure what to expect. You may generally know that you’d like to hand your business off to someone else, but the actual process itself can have very unexpected factors and nuances for you to consider.
The sale process can be lengthy and require a lot more time and effort to go into than expected. There is also work that could/should go into preparing a company for the sale transaction and transition of ownership.
So, what should you expect when selling your business? We have mentioned a few different ways you can sell your company, and some misconceptions agency owners face when they are ready to sell their agency in a few of our other blogs. Here is a consolidated breakdown of five common misconceptions that business owners may have when selling an agency that will help you be better prepared for the sale process.
Are you interested in receiving guided expertise to help sell your business? If so, contact Clare Advisors to see how we can help you!
1. Misconception: Evaluating Your Business Properly is Easy
Properly valuing your business can be a difficult thing to do. Understandably, you would want to sell your agency at a high price considering you’ve put in years of hard work and effort to build your agency to where it is now. However, that may not accurately represent how much your business is worth to a potential buyer.
When a buyer comes in, they will look at the agency’s historical, current, and forecasted future financial performance. It will help if you don’t get attached to particular purchase prices. If you start getting initial offers within the same range that are nowhere near what you’re expecting, the market value of your agency is not the value you hold it at.
Understandably, your agency will always be worth a lot to you, but you will have to understand that others will not see it in the same way. A lot of overall consideration in a deal comes from the earnout portion. If your business is positioned for revenue or profitability growth in the years after you sell, you may benefit even more from a larger earnout portion of your overall consideration.
2. Misconception: Once You Sell, You Are Done
Buyers rarely let the business owner exit as soon as the deal is closed. Most buyers want the owners to stay for a myriad of reasons. Some may want owners to stay through a transitionary period to help maintain client relationships and get them comfortable with the new ownership.
Similarly, they may not want to put the owner in an earnout to maintain employee relationships as well. If employees are very loyal to the owner, a buyer may want to keep the owner for longer for the employees to get used to seeing the agency owner less often or in a limited capacity before they exit.
Buyers also typically want the seller to stay longer to mitigate the financial and operational risk. If the seller’s earnout payments are tied to the profitability of the agency post-acquisition, the seller is more incentivized to make the agency more successful. This ensures that the company is set up for future profitability and allows the current owner to maximize their earnout. Both the buyer and seller benefit from higher revenue and higher profitability.
3. Misconception: Selling Your Business Is Quick and Easy
One of the biggest misconceptions about selling your business is that it’s a quick process once you decide to sell it. This is very often far from the truth. The process has many moving parts and often takes much longer than people think. You have to consider the time it takes to get all of your financial accounts in order, how long it may take to find a buyer, and how long the negotiation process is.
Depending on the sale type, the deal can take anywhere from three months to twelve months. You can have an exclusive buyer that can speed up the sales process while having a universe of buyers to reach out to/communicate within a limited or traditional sale will look at a longer process.
Many buyers don’t want the owner to leave immediately. Marketing and advertising agencies can take about three to five years before the sale is complete, and the owner leaves after the earnout period. It’s advised that you should start the process as soon as possible when you’re considering selling your business to provide adequate time to complete everything.
If you’re unsure what you need to do to sell your agency, contact Clare Advisors to learn more!
4. Misconception: Choosing the Buyer Doesn’t Matter
Some business owners may think that they can simply sell to a family member, internal employee, or a third party. However, agency owners cannot simply pick some time to take over the agency when the agency owner decides to exit. You may not have any family members that have any experience in your industry and/or running a business. What if none of your employees want to buy your business from you? How will you find an ideal universe of buyers that would want to buy your agency?
Selling to a third party is usually the most strategic choice for many agency owners, but how do you pick between potential buyers? Although the person/entity offering the biggest sum of cash at closing may sound the most financially appealing, that doesn’t always mean they’re a good fit for you and your agency. You want to consider what they offer for an earnout, what they propose for your employees and the type of culture that you and your employees will be joining post-closing.
5. Misconception: Waiting Means the Sale Price Will Rise
One of the biggest factors about a successful business sale is the timing of a transaction. Although you can manage many factors such as recurring income streams, workforce stability, or the quality of your services, you can’t control the direction your industry or the economy take. In other words, waiting to sell your business at the “ideal” point for a higher sale price could result in you waiting too long and missing a good window of opportunity.
There is no guarantee that there will be a seller’s market when you decide you are ready to sell your agency. Additionally, you should not put all your effort to get your agency to reach a certain amount of revenue or EBITDA and then sell. In any earnout, a buyer will expect the acquired agency to continue growing, and if the seller exhausted their human capital and resources to get to the particular number, their earnout will not be maximized. A good way to help choose the right time to sell your business is to look at when you are forecasting a few years of revenue and profit growth. You want to sell your agency when it has the momentum to earn as much as possible in the earnout – that is how you maximize your value.
Clare Advisors is an M&A advisory firm with decades of experience in mergers and acquisitions in the marketing and advertising industry. Our team provides M&A advisory services through every step of the process. We can help you no matter the sale type and help you get your agency in the best position for a smooth sale transaction.
Are you ready to see how Clare Advisors can help sell your business? Contact us today to get started!