Selling your agency can be stressful and downright scary. But don’t worry, you’ve come to the right place. Even if you haven’t thought about selling your agency, this post will have plenty for you.
On March 11th, alongside our esteemed partners Jeff Meziere, Cory Miller, Kristina Romero, and Hans Skillrud we had an open and honest conversation on how to position your agency for maximum value and all of the fine details of the acquisition and selling process.
Whether you’re interested in selling or not, building an agency that has objective monetary value should be every agency owner’s goal.
How do you value your agency?
Even if you don’t have someone who’s actively approaching you to make an offer on your agency, yet. How would you set a ballpark number for the agency? It depends on the size. Each agency is unique in its own way.
Here at GoWP, our mission is to help agencies grow and increase their profits. So from our panel discussion, we distilled an 8 step framework that will help you establish value for your agency or help you start thinking about what are the steps to start the process of establishing value.
How to value your agency in 8 steps:
1. What they’re willing to pay
Determine the size of your agency. Is your team a small operation of 2-3 people or freelancers that’s mostly remote? A limited list of clients with a couple of projects a month?
There are many variables that come into play that allow you to put a value price on your agency. This value is determined by the conversation you and the person who’s buying the agency have. What they’re willing to pay. Very much like in the housing market, perception is everything. If someone really wants to buy something, they’ll pay a lot more. Always keep in mind what it is that you want to get out of it.
2. Recurring Revenue / Predictable Revenue
Having a recurring stream of revenue or predictable revenue coming into the agency is ideal to have already set up when you start setting a value for your agency.
What is your business health? This is the biggest determining factor for small agencies because a recurring revenue number will allow you to add to that number.
3. Assets, processes, & operations
What processes do you have in place that allow your businesses to run smoothly? What about your team or people who work for you? Any sort of lifetime deals for plugins or software that you have set up that’s carrying over to help the agency? The answers to these questions are valuable assets that determine the value price of your agency. Processes increase liquidity. It’s important to have these documented, showing a receipt of how much money you made won’t show how you made that money.
Processes bring efficiency which brings down the cost of delivery. Efficiency eases transition, so if you can ease a potential transition to your potential buyer, that adds more value to your business. These processes you have in place are most likely assets you’ve been perfecting for years, don’t forget about them!
4. Range of value
Very much like when you’re purchasing a used car, keep in mind the range of value of your agency. What’s the max amount of money your agency can generate? Keeping in mind the size of your agency. The bigger the agency the higher the potential ceiling.
5. Key Indicators
Once you’ve stated all of the key indicators for your business in your specific niche market such as: recurring revenue, assets within the organization, and range of value this is when you start thinking about value and price.
6. Put on an investor hat
All of the things an investor would like to see in a successful business are things that you as an owner should have in place in your business ready and set to go.
7. You don’t have to sell to add value
Clear processes that are perfected and add value to your business are something you can continuously benefit from. Adding value to your business isn’t something that you do once you decide to sell, it’s an ongoing process that continuously benefits you and your business.
8. Legal things to consider
Don’t underestimate the amount of time you might spend drafting a contract. Think about the legal aspects of maybe selling to a company that is not in the US. Consider getting the business in a shape where you can hand it off: all finances are clear and separated with their own bookkeeping. Your professional emails are not tied to your personal emails. All of the clean-up and preparation that needs to be done before you sell. Are you keeping your legal entity or will it be dissolved? Even if you don’t sell, considering these things will improve your business.
How to increase your value objectively
Remember that as special and close as you may be with your clients (that’s mainly great customer service) any good buyer should be able to continue to nurture those relationships. – @DeepSpaceHans Click To Tweet
Referrals from your clients should be a focus and motivate you to nurture your client relationships. However these referrals come in, whether it’s organic or direct referrals, these are all things that generate more revenue. Focus on where your business drives referrals and improve that as much as possible. Understand where your leads are coming from and nurture that. Once you have an interested buyer this is something you can disclose.
Brand vs Client List
No matter the acquisition, the brand will stay the same. The name and marketing channels are still there. With agencies, it’s a little different. With most acquisitions of web agencies, the agency is absorbed and the brand is removed. If you’ve spent a lot of time building your brand (building keywords that drive traffic to your website, etc), you most likely will want to find a buyer that values that brand presence. Yes, there is a lot of value in building a brand, but at the end of the day, how many buyers are looking to build on the brand rather than absorbing the client list?
The Exit Strategy
Keep in mind a healthy and well-prepared business for an exit is a healthy and profitable business for you. Be on the offense and think strategically. Think about what will benefit and profit you in the long term. – @corymiller303 Click To Tweet
The Networking & Commission Approach
A great way to find a buyer for your business is networking. Groups like the Niche Agency Owners Facebook or WordCamp are a great place to start having conversations with people who may know where the right buyer may be if going with a commission approach.
Know where you sell. Tools like BizBuySell and Business Value Academy are great resources to find an acquisition pool, what the industry looks like, and learn what the overall value of your business is. Give yourself the option of getting the right buyer for your business.
You get to decide your own future
All of these tips, tools, and frameworks will ultimately help you decide your own future when it comes to selling your agency or not. Something to always remember is that you as a business owner and entrepreneur, have options. It’s not all or nothing.
If you’d like to watch the panel version of this post, take a look at it here.