Everything You Need to Start, Scale, and Sell Your Own Agency
Selling an agency can typically be an overwhelming and exhausting process. From audits to paperwork reviews to the never ending struggle of due diligence, it takes a lot of energy and focus to successfully sell an agency. Ready on to see what to expect in this process, and how to ensure success.
For many agency entrepreneurs, the end goal of launching their agency is to take it to market and sell the business to another agency or corporation. But that’s where a lot of similarity ends—there are numerous reasons an agency principal would choose to sell their business. It’s important to clearly identify your goals and motivations for selling as early as possible, so that you always have a set of standards against which you can measure potential suitors. Selling your agency can be both the pinnacle of your career, as well as the most stressful, anxiety-ridden, and hectic time of your life.
What do you want to get from selling your agency?
Make a bulleted list of what the ideal outcome would be from selling your agency. It’s helpful to differentiate the list into “must-haves”, “nice-to-haves”, and “must-nots”. Keep in mind that when you sell your agency, you’re not only impacting your own life, but the lives of all your employees. Think about the long term impact to their careers as you brainstorm items to include on that list.
Even if cash is your only motivation for selling, it’s still important to consider what type of working relationship you will want with the buyer. Almost no agency will be purchased outright for cash. Most deals are structured in some sort of 60/40 (or similar) split, with 60% cash being paid upfront, and the remaining 40% being tied to specific revenue or EBITDA goals over a period of years. These “golden handcuffs” are there to ensure that you, as the agency principal, don’t immediately jump ship after selling your business.
If you’ve read our article on How to Start an Agency, you know how important it is to keep all your business and accounting paperwork organized and up-to-date. If you’ve stayed on top of this while running and growing your agency, congratulations! You’re well ahead of the curve. If not, you’ve got some real work cut out for you. Here are some preliminary materials you should be certain to have in order:
You don’t want to find yourself scrambling to gather all these materials months from now when you’re in the middle of due diligence.
It’s tempting to try to sell your agency all on your own, especially when you look at the percentage business brokers take as a cut from the sale. After all, that DIY entrepreneurial spirit is what guided you on your first steps to learn how to start an agency, and has driven you to launch and grow a successful business from day 1. But, unless you maintain a well-connected network of Mergers & Acquisitions (M&A) professionals and can confidently red-line hundreds of pages contracts, this is one undertaking that really makes sense to leave to the pros.
Ideally your agency already has a working relationship with a lawyer (bonus points if that lawyer has experience in M&A). Your lawyer should be incredibly familiar with how you structured your business, any potential threats of litigation you might be facing, and any red flags you should work to remedy. Your lawyer will also take the lead in reviewing drafts of the Purchase and Sale Agreement with an eye to keeping your personal interests maximized.
Your accountant will be a critical part of your M&A team, working to clean up all of your tax and accounting documents, and responding to specific financial requests from the purchasing organization. The right accountant can mitigate an enormous amount of work and stress during this process.
Your broker will be your coach, guide, handler, and negotiator throughout the entire process. Their market research will help capture an accurate picture of your agency’s value. Their team of experts will work to compile your Confidential Information Memorandum (CIM), detailing every aspect of your agency, from financials to operations to products to services. The CIM will give a prospective buyer all of the information they need to confidently purchase your agency.
Your broker will also find potential buyers, help you negotiate the best deal, and manage the full sales process.
After your CIM is completed, your financials are in order, and all your contracts and paperwork have been consolidated, your broker will be ready to take your agency to market. They’ll most likely share out a “one-sheet” that teases out some key pieces of info about your agency, working through all the colleagues in their network to find any organizations interested in acquiring an agency like yours.
At this point, your job is to just sit back and wait for prospective buyers to sign an NDA in order to gain access to your CIM. If a buyer is interested in pursuing your agency, they’ll expect to conduct a series of interviews with you and any key staff. While the CIM covers all of the quantifiable pieces of your agency (revenue figures, key accounts, etc), these interviews offer you an opportunity to share the qualitative story behind who your agency is and why your work is so compelling. Potential buyers want to see your expertise. They want to work with an agency owner who is insightful, expert, and easy to work with. After all, you most likely aren’t selling any physical goods to these potential buyers—they’re interested in buying your expertise and vision. It’s not a bad idea to practice telling the story of your agency to colleagues and peers to gain valuable feedback before meeting potential buyers.
Assuming your story and your CIM are both compelling evidence as to the value of your agency, you can expect to begin receiving Letters of Intent (LOIs) from your suitors. An LOI is typically one or two pages long, and outlines a valuation metric (typically some multiple of your 12-month trailing EBITDA), as well as some assumptions and stipulations about next steps. Your broker and lawyer will be able to provide guidance as you review these LOIs, helping you identify the best initial offers and, when possible, negotiating on your behalf to strike a better deal from your favorite suitors.
Once you agree to move forward on an LOI, the buyer will put you through an exhaustive series of due diligence tasks. Expect teams of accountants and lawyers to complete an exhaustive audit of your agency. You may find yourself with a “to-do” list that seems to only grow and never shrink. It’s important that you work with the potential buyer to get them all the information the need in a timely manner, but make sure you maintain some focus on keeping your business running! Due diligence can quickly eat up all of your time, which can be problematic for your sales pipeline if you are the primary new business developer in your agency.
From learning how to start an agency, to growing an agency, to selling an agency, you’ve come a long way. Assuming you make it through due diligence and all parties are satisfied, all that’s left is signing some significant stacks of paperwork (make sure your lawyer reviews everything first!), providing wire instructions to receive payment, and then popping an expensive bottle of Dom Pérignon. Congratulations—you’ve earned it!