If you are an agency owner with a long-term view to sell your business there are several things you should consider that affect your agency value and various factors that buyers will want to understand about your agency before they make a decision to purchase.
In this article, we will discuss ways in which you can increase the value of your agency, and what buyers will take into consideration when they look to value it.
Things that affect your agency’s value.
Competitive advantage.
Your agency will naturally have processes and efficiencies that you have built into your working methods. Utilizing technology such as new software features and even AI can help you gain a competitive advantage and, in turn, attract profitable clients.
Growth.
Growing your firm, either in terms of staff, and services or by investing in new technology can increase your output, make your firm more efficient and help generate higher revenue.
Employee retention.
An employer value proposition coupled with an attractive package will keep staff happy and help increase your productivity. Employees are ultimately ambassadors for your company and a happy and motivated workforce will increase your productivity, profit and value. Read more about how to attract agency staff in our article here.
Client relationships.
When your firm has developed a competitive advantage and has invested in both staff and technology this will help you nurture your client relationships, leading to re-occurring work and referrals to new clients from existing ones.
What buyers will consider when valuing your agency.
Profit and track-record.
Buyers will want to see steady, planned growth and profitability demonstrated in the business, rather than feast-and-famine levels of income over the previous years. This will be one of the biggest influences which will affect the perceived value of your creative business. If your firm is particularly profitable, you can read our article on how to manage excess cash in the business here. It is important of course not to confuse cash in the bank with profitability (and visa versa) which may give you a distorted opinion of your business valuation.
The size of the business.
It is generally accepted that larger businesses are a more attractive proposition to buyers than smaller businesses. More staff, better processes and a strong marketing strategy can help larger businesses weather economic downturns which means less risk to the buyer.
Having a niche.
Having a niche, either vertically (in a specific audience) or horizontally (in a creative discipline) will allow you to charge more for your services because you can offer a deeper level of expertise to your audience. You will also gain SEO benefits from niching, and a stronger position in the market, making your business more attractive to buyers. Read our article on the benefits of niching your creative business here.
Clients.
A portfolio of high-value and long-term clients will be an attractive proposition to your potential buyers, and more so if you have a vertical niche, allowing you to provide deeper expertise to these clients. Attention should be given so that you are not reliant on one or two clients for a large proportion of your income, as this carries a risk of financial difficulties should you stop working with them.
The separation of the founder’s personal brand from the business’s brand and IP.
It is important that the creative business possesses its own identifiable brand and culture as a separate entity from the personal brand of the founder. This separation should also be taken into consideration when the business publishes any research into its niche market, so as not to leave the business bereft of any tangible brand or IP when the founder exits. This will play an important factor in the founder’s earn-out period.
Recurring income.
Having a portfolio of clients to whom you provide creative services on a retained basis can put your business on a good footing. Recurring income will help buyers see your business valuation in a more favourable light.
Management.
Another reason larger firms are more attractive to buyers is they will have an established management team who can run the business in the absence of the founder. A creative agency should be able to operate as an entity without the day-to-day input of the founder, allowing you to exit the business (often on an earn-out basis) when you sell.
Earn-out period.
A longer earn-out period for the founder usually means a higher valuation. This means that the founder may stay as a salaried advisor to the business for three or four years, which helps the transition of the business to the new owner and is seen as less risky.
Conclusion.
Understanding how you can positively affect the value of your creative business, and what potential buyers will look for when considering buying it is a complex task, with many factors.
If you are thinking of selling your business and would like to talk to AO Accountants about the next steps, please get in touch with us here.
