Barney’s Unique Approach To M&As For Digital Agencies

Digital Agency M&As Are Different. That’s Why Barney’s Process Is Different, Too.

The mergers and acquisitions process is too frequently approached from a one-size-fits-most perspective. Such a narrow approach creates unnecessary friction, delays, and related problems, especially when the M&A sale process involves a digital agency.

Selling a digital agency isn’t about selling tangible assets. It’s about selling relationships. This makes it go far beyond a mere transaction. Sellers aren’t just interested in getting the most money possible from the exchange. Certainly, profits are essential. But they’re hardly the only worries on digital agency owners’ minds as they face the M&A process.

For instance, plenty of owners lose sleep over finding a buyer who will manage the company wisely, treat existing employees well, and maintain the brand legacy and company culture. And owners who intend to remain involved in the business in a short-term or long-term capacity tend to fret about fitting into a new ecosystem and culture.

These are just some of the dilemmas that can present stumbling blocks to getting digital agency sales through each of the M&A phases. They’re also the reason that Barney’s team members make a point to understand and empathize with sellers’ unique goals and worries deeply. After all, strategic, thoughtful, and deliberate matchmaking is critical when it comes to mergers and acquisitions transition events.

In other words, what digital agency M&A processes need are acquisition team members who see themselves in a concierge capacity.

The Benefits of Concierge Service Throughout the Digital Agency M&A Process

In the world of hospitality and tourism, concierges serve as expert guides. They learn to listen carefully and make recommendations based on the person or group they’re helping. The same general principle holds true of concierge service during mergers and acquisitions.

We ask probing questions upfront when we meet a potential digital agency seller or buyer. It’s our way of understanding the authentic values and objectives driving each party. From what we hear, we can move forward through the M&A phases with confidence. Make no mistake: This is a disruptive approach in M&A. Yet it’s proven effective time and again.

To date, we’ve moved more than 150 deals across the finish line swiftly but surely. The reason? We view ourselves through the lens of wearing concierge hats and treating each M&A experience as distinctive. Yes, all M&As share common characteristics. However, they shouldn’t be molded with the same cookie cutter.

So what does Barney do that’s so different from a typical M&A business brokerage?

1. We strive to educate seller and buyer clients.

Like all concierges, we know our “city,” which happens to be the digital agency mergers and acquisitions space. As a result, we strive to pass along our expert knowledge to all stakeholders.

Take our M&A process timeline, for example. We’ve constructed a framework that’s flexible enough to accommodate the nuances of each M&A and defined enough to produce repeatable reliable results. When we walk digital agency sellers and buyers through our M&A sale process, they gain a greater vision of what to expect. This helps reduce stress and avoid misunderstandings.

2. We are always here as a resource to founders.

When you go to a five-star hotel, you can expect to connect with a concierge practically round-the-clock. The same holds for Barney’s team. We’re an available resource 24/7 to answer questions in a relatable, compassionate, friendly way. We don’t just send sellers and buyers to a website with canned answers. We break down their concerns bit by bit and answer them in a language they understand.

Being able to speak the digital agency language is a huge boost. More often than not, sellers and also buyers are fresh and new to digital agency M&As. Talking with them using their ecosystem’s terminology makes a positive impact.

3. Kindness is integrated into everything we do.

As mentioned before, selling and buying a digital agency can evoke a rollercoaster of emotions. We anticipate this, which is why we put a great deal of emphasis on being kind through our actions and words. Kindness is perhaps one of our greatest differentiators, as well as being one that we’re proud to provide.

We’ve found that when you’re sincerely empathetic, you become better problem-solvers, too. Since the start of Barney, we’ve embarked on a practice of continuous improvement. It’s helped us become the best in our field, just like the founders of the digital agencies we represent are the best in their industries.

All business relationships are precious resources, including the relationships formed during mergers and acquisitions transitions. No matter why you’re considering M&A for your digital agency, make sure you’re getting the concierge treatment from your closest partners. It’s what you, your team, and your firm deserve.


5 M&A Transaction Red Flags

All solid merger and acquisition deals share one commonality: They grew from a foundation built on trust and transparency. This isn’t just a talking point. It’s something that has proven itself time and again.

From a seller’s standpoint, trust and transparency are critical to successful M&A transaction experiences because they reduce selling stress. Letting go of a business can be emotionally difficult. Trusting the buyer as well as the M&A advisor makes the process easier to absorb and accept.

Of course, buyers value transparency and trust in business, too. They feel more comfortable knowing that all the cards have been laid on the table. That way, they can evaluate those cards and purchase a company with confidence.

Here at Barney, we try to make good M&A matches that put all parties at ease. Accordingly, we vet buyer stakeholders to promote healthier buyer-seller relationships. To be honest, a lot of what gets deals across the finish line isn’t capital or timing. It’s the trust and honesty that comes from forming a relationship during initial meetings and the due diligence period as well as forthrightness in all matters to reduce the chance of surprises.

Our framework of transparency works well because we understand how to bypass common pitfalls. Yet not everyone who wants to sell or acquire a company knows the red flags when buying or selling a business. If your future includes entering a legal business contract from either standpoint, watch for the following indicators. They’re usually markers that something’s amiss.

Red Flag #1: The buyer offers too much cash at the close.

We’ve all heard the adage that if it seems too good to be true, it probably is. The same holds in the M&A world. Unsophisticated buyers who don’t understand structuring acquisitions will sometimes throw out lofty numbers to get attention.

The problem comes when the letter of intent is signed. Often, they either re-trade the deal or realize they can’t get the funding they anticipated receiving.

Red Flag #2: The buyer doesn’t offer enough cash at the close.

Welcome to the other side of Red Flag #1. In any M&A transaction — especially one involving a digital agency — the cash offered at close is king. If a buyer suggests paying less than 30% at close, you probably want to go a different direction.

Here’s the issue: Having contingent consideration or upside in a transaction is important. However, it’s just as important that the riskiness of the contingent consideration is kept at a comfortable level for the seller. Ultimately, it’s best to push for every dollar you can get upfront.

Red Flag #3: The seller appears to be unorganized.

No leadership team. No business development team. Scattered financials. These all point to the probability that the seller isn’t ready.

Investors want to buy businesses built to scale. They want to see streamlined workflows and consistent processes in place. Above all else, they’re eager to put their capital into a well-oiled machine, not one that might break down at a moment’s notice.

Red Flag #4: A stakeholder’s intuition says, “This is wrong.”

It can happen whether you’re a seller or buyer: Your Spidey senses start tingling. Something doesn’t feel right. Even if you’re in the middle of a deal, listen to your gut. Maybe you’re just lacking confidence or feeling overwhelmed, which are emotional responses that can pass. But perhaps you’re noticing subtle warning signs.

Walking away from the process doesn’t make you a bad businessperson. In fact, it could save you or your company from a major mistake. Certainly, you’ll want to talk with your M&A advisor about your worries in private. Nevertheless, don’t assume that you must sign any contract if you’re not convinced it’s the right direction.

Red Flag #5: Buyer or seller issues start bubbling to the surface.

Deals informed by transparency are more likely to succeed. However, transparency doesn’t mean admitting to something when you’ve been “caught.” It means doing everything possible to lead with transparency.

For instance, almost all companies undergoing M&A transactions create and share virtual data rooms. All pertinent stakeholders can be given access to the virtual data room to foster good communication. Having a centralized, shared platform encourages dialogue and reduces the friction that comes from having too many “I forgot to mention this …” moments.


Here's Why You Should Consider Phantom Equity When Selling Your Agency

The Very Real Promise of Phantom Equity

The terminology may frighten some away. But phantom equity, especially when it comes to selling your agency, has the potential to breathe new life into your agency. The upsides are well worth taking the time to ensure that phantom equity is anything but elusive to you. Make phantom equity work to your advantage by using it as the adhesive that binds essential human capital to your agency long-term, especially post-sale, promising profit shares in return.   

What Is Phantom Equity and Why Does It Matter When Selling Your Agency?

Phantom equity is both equity and not equity. It offers the benefits of company stock without actually issuing any. Known also as “phantom stock” or “virtual shares”, they offer deferred compensation in line with company performance much like actual stock would. And much like actual stock, this equity will vest over time and according to an agreed schedule. However, unlike actual stock, phantom equity never offers the opportunity to exercise a voting right; they are financial-only. This means holders of phantom equity don’t sit on the cap table, carry no liability and, as such, pose practically no added legal requirements or costs to get set up as phantom stockholders.

Should I Take Advantage of Phantom Equity When Selling My Agency? 

If you are considering selling your agency and you’re an owner who is looking to stay on long-term, phantom equity makes perfect sense. Phantom equity ensures that a founder – or any other essential team member for that matter – stays on, stays committed and stays a part of the continued growth story even after a sale and post-sale transition period have been completed. Offering phantom stock in the business post-transaction offers an objective guarantee, aligning buyer and seller incentives for continued success. 

After all, human capital is the key component to the business that was just acquired. Keeping the engine room of an agency firing on all cylinders means binding that human capital to the agency’s continuing journey down the growth path. Especially when the agency is a smaller business – approximately 15 people or fewer – the value of each team member tends to be magnified. Binding essential team members to the long-run success can be a sure-fire win-win.  

When Does it Make Sense to Avoid Phantom Equity? 

If you are looking at selling your agency but do not plan to stick around for the long haul once your agency has been sold, then phantom equity may not be for you. Even a full year of commitment post-sale is not in alignment with the purpose and likely vesting schedule of phantom equity. Generally speaking, it takes a minimum of a three-year commitment for phantom equity to really begin to pay off.

In addition, if a buyer only wants to incentivize team members that stick around for an agreed minimum period that extends beyond the start of the vesting schedule, they may want to consider a cash bonus plan instead. The reason here is that these are generally forfeited altogether when an employee leaves whereas the vested phantom equity could mean having to pay out somebody who left sooner than a buyer might have liked. 

The Bottom Line

The initial post-sale transition period of, on average, 90 days is tied into every deal. What happens beyond that is down to the interests and alignment of seller and buyer. If the interest is there for a seller to stay on board long-term and keep reaping the benefits of an agency’s ongoing growth story, the direct path to participating in the profits to come, is phantom equity. 

 


Flexibilty Is Key When Selling Your Digital Agency

Selling Your Digital Agency?  Why an Owner’s Flexibility is Key to Sealing a Deal

When you are selling your digital agency, negotiating the sale will take time. That time will require more than just patiently waiting on the sidelines. It will require a back and forth that will see most owners giving way at some point, be it with regards to the selling price, payout terms, or the time it takes to complete a deal. Staying focused on the goal of completing the deal – rather than staying focused on a timeline or a price tag – will help ensure a successful transaction.  

Your Transaction Doesn’t Live in a Silo

As promising as the performance metrics on the books may look, the growth trajectory of your agency is taking place in a complex environment comprised of many players. There will always be a market reality outside of your agency. And a buyer scanning the market will be well aware of this reality. It’s important to show you understand this in practical terms by adjusting deal terms and pricing in line with what the market suggests is feasible.

Your Agency Has More Than One Type of Buyer

While you may have your mindset on a specific type of buyer, market shifts mean that not only are price and deal terms a dynamic part of the equation, but the buyer type continues to evolve as well. Larger agencies looking to acquire your client portfolio may have been a classic buyer type in the past, but they are far from the only one nowadays. 

Solopreneurs, in particular, have reshuffled the deck. These high-net-worth experts are sitting at a corporate job or a large agency and are looking to apply their know-how and their network to scaling something they don’t have to build from the ground up. Keep an open mind as to who will be steering the ship following your departure and you will be sure to up your shot at getting the deal done. 

One Step at a Time When Selling Your Digital Agency

Flexibility won’t go far if you can’t apply a healthy dose of patience to the selling your digital agency process. Keep a leveled head as negotiations inch forward and continue to be calm post-transaction as well. Staying flexible with respect to how long you will be needed after the date of a transaction will help ensure smooth sailings beyond the moment of signing. Putting in the bare minimum of just 30 days to cash out fast is never recommended. A 90-day minimum that is ideally extended into the range of 6-12 months is optimal to make sure all parties’ best interests have been served. 

One Step at a Time

An agency sale is not complete on the occasion of signing the deal. It’s important to understand what happens in the run-up and the post-sale and what sort of attitude can help all involved feel like they’ve hit a home run. Just like a solid workout demands a warm-up and a cool-down, no transaction is complete without buyer scoping, due diligence and transition period in the stages before and after a sale. And just like that workout, your sale will fall into place one step at a time. Staying flexible along the way means that you will be prepared for what the process will inevitably throw at you – and ensure sure that you’ll be there to answer the door when opportunity knocks.   


Why Honesty Is Essential When Selling An Agency

Are you selling an agency? There is one thing above all else that you can do as an agency owner to help make the sale of your agency, and the ensuing transition period, as smooth as Sunday morning jazz: Be Honest. A serious buyer will always do their homework – and a minimum 45-day due diligence period is guaranteed to reveal anything they weren’t able to uncover upfront. Better still, find out what is of particular importance to a buyer so you can be transparent about those key issues in particular. Not entirely sure what those are? We have a pretty good idea.

Selling An Agency Rule #1: No Surprises

Align your communication with your true intentions once you are no longer at the helm. If your aim is to keep the transition short, don’t communicate that you will be available for the long haul after the sale to try and get the deal done. Adapting the transition period to how long an agency owner will be around is crucial to make sure the necessary ground is covered. If you are unsure about the ins and outs of the transition period, you can read our piece on that here.

The same goes for what you plan to do once you have walked away. If you plan to start a new agency, you will need to put a workable non-compete agreement in place first. It’s not unlikely that a new agency could be your next move, after all. You have the founder’s DNA inside you and have lived and breathed marketing in some form or other for years. Of course, it’s only tempting for an alternative next move to be early retirement and more time spent with your growing guitar collection, but if what you’re going to do is start a new agency, start on the right foot.

A further point to be clear on is the role of employees and where the client relationships sit. If owners are essential to maintaining these, this needs to be addressed. Buyers will typically interview senior employees to get the low-down anyway, so all the more reason to be upfront about relevant roles and relationships. An agency’s employees will be the ones staying on to deal with anything that was not handed over cleanly and openly. Just one more reason to keep all the stakeholders – and not just the one shareholder – top of mind when communicating your sale.

Managing Expectations

Like with any other transaction and business relationship, success lies in the alignment of the objective value of an asset and the perceived value. In other words, managing expectations is the key to making an agency sale a win-win. There are enough buyers for every type of agency so making the right match based on the facts of the business will be the key to making your sale a success for all involved.


Buying An Agency: Which Type Is Right for You?

So you’re buying an agency … congratulations! Marketing agencies (especially digital agencies) have never been in greater demand, and your chances of success are high – especially if you acquire an agency with a strong reputation and healthy customer base.

If you have never owned a business before or are new to the agency world, you might be wondering which type of agency to target. The sector is dynamic and constantly changing (perhaps this what attracted you to it in the first place).

This article will provide you with an overview of the types of digital agencies you have to choose from. Just as importantly, it will recommend some actionable steps for figuring out which of these categories is the ideal fit for you – whether you’re purchasing a business for the first time, or already own a successful business and want to add another to your portfolio.

Zooming In: Types of Digital Agencies by Service

There are many types of agencies, from service- oriented and vertically integrated to pure marketing SaaS and many more.

Before we walk you through some practical tips for deciding which business to buy, let’s examine three categories of digital agency and the potential upsides of purchasing them.

The industry is exploding with ideas and growing exponentially, so we won’t attempt a comprehensive categorization. But the following are well established, distinct subtypes with high product-market fit and thriving demand.

Sounds like a good place to start, right?

SEO Agency

The SEO (search engine optimization) agency is one of the largest digital marketing agency subset. This type of agency has defied the odds to thrive in a changing marketplace.

The fact that we probably don’t need to tell you what an SEO agency does is solid proof of how firmly the concept of SEO has taken root in the public consciousness.

Buying an SEO agency has its advantages: the process of constantly making and testing changes to the design of clients’ websites means recurring business in addition to high average monthly income.

Another plus for those with existing companies: owning a business whose business is helping other businesses’ visibility has the opposite effect of making your company invisible.

Social Media Marketing Agency

Can you say “viral?” Social media marketing firms are a bit like the SEO agencies attractive younger siblings – though they now have target audiences in every age demographic.

As you can guess, these agencies market their clients – and often themselves – on social media networks such as Facebook, Instagram. TikTok, Twitter, LinkedIn, Snapchat, and Reddit. Most of them also use blogging and offer some degree of influencer marketing.

Growth is baked into the business model of this type of agency. If you buy one that is good at upselling new platforms to its clients (see TikTok above), you might even be able to scale your services.

As with SEO agencies, social media marketing agencies are useful investments for buyers who already own a business and want to get more visibility for it.

Lastly, as the name indicates, these agencies are social animals. Establishing and nurturing strong relationships with their clients and their clients’ clients is what they do best. This makes for excellent client retention, which in turn means healthy recurring monthly revenue.

PPC/Inbound Agency

This last type of digital marketing agency we’ll cover is a different kind of beast, but a very friendly one. The name of the game for PPC/inbound agencies is inbound marketing focused on generating ROI (return on investment). Once considered avant garde, in 2020 these agencies are growing like bananas from Chiquita.

The companies they serve demand results and these agencies specialize in it. The most successful and desirable ones to purchase have built incredible efficiencies through API’s of great software or even built their own SaaS to close the gap on demand and results.

Knowledge of current clients, client retention rate, and retainer revenue vs. project revenue are uber important when comparing agencies for sale of this type. Do they churn and burn or nail it nearly every time?

Inbound agencies are terrific investments for both beginning and experienced buyers. These businesses tend to be scalable, and as such can provide revenue and growth for years to come.

Buying an Agency for First-Time Buyers

Are you a first-time buyer? Every buyer is different and brings his or her own passions, skills, experience, location, and financial standing to the negotiating table.

Your first step in answering this question should therefore be to consider all of these unique factors and make sure that a digital agency is a good match for them. Hint: the more flexible and creative you are, the better!

Step two is to drill down to find the right type of digital agency. Try browsing agency sales listings and filtering for agency type, price, revenue, net income, and age. This will give you a feel for the market and provide a springboard for a conversation with a broker or M&A Advisor.

Agency Purchase for Seasoned Business Owners

If you already own a business, you probably already know what kinds of businesses are compatible with you. But what about the various types of agencies? This is where it gets more complicated.

To start with, you should determine what type of agency would combine well with your existing business. Think in terms of synergies. Which agencies will enable you to up-sell services from your current company, and vice versa?

If you have already narrowed down your search to specific companies, compare each ones’ employees and ask yourself: which complements or augments the capabilities and personalities of those who are already on my payroll?

Browse our businesses for sale to get ideas for how to grow your business through buying another company. It could be a geographical expansion or an expansion of products or services offered. Weighing all of these factors will guide you towards the perfect business purchase.

If your budget allows, consider our buy-side acquisition services. Our clients hire us to uncover direct-to-founder opportunities for acquisition and manage deals from start to finish. If you’re looking to buy a marketing agency, we can help you.

That’s a Wrap!

To sum up: digital marketing agencies come in numerous shapes and sizes. The tips in this article will help you identify which one is the perfect purchase for your needs as a business buyer.

Once you’ve done so, it’s time to talk to us. We’re here to help you succeed! It’s why We Are Barney.


Sell Your Agency By Shifting Your Mindset


If you're trying to sell your agency, you’ve met them by now: those potential buyers who have dollar signs for eyes, calculators for hearts, and bank vaults for souls.

You’re not the judgmental type. You’re out to get the most value for your company and you’ll give the highest bidder the benefit of the doubt. But this type of prospect rubs you the wrong way.

Read more


Selling A Marketing Agency: How The Process Works

Selling a Marketing Agency: How The Process Works

Congrats on selling your marketing agency. This is a super exciting time for you 🙂 If the process seems overwhelming, don’t worry! With the right team guiding you through the process step-by-step, you can rest assured knowing that the acquisition process is a smooth and rewarding process.

Step 1 – Set-Up An Intro Call

Set-up an intro call with our team – you can do that here. On this call, we will answer any questions you have about the process of selling marketing your agency, like how agencies are values, the time it takes from start to finish and transition expectations for you after the sale is complete.

TimeFrame: Within 24 Hours

 

Step 2 – The Valuation

After the initial call, we’ll tell you exactly what we think your agency is worth today. You’ll send over 3 years of P&L statements and a current balance sheet, and we’ll turn around the valuation within 48 hours. There are 14 factors we consider when valuing an agency, the most important being the net profit of the company. Depending on your desired timeline to exit, we’ll work together to determine the appropriate listing price.

TimeFrame: Within 24 Hours

 

Step 3 – The Advisor Agreement

We get paid a % commission of the total sales price of the business upon closing + a retainer while the agency is listed and under contract. Pretty simple right? After the valuation call, our team will send you our Advisor Agreement for review, which outlines our role and responsibilities in acting on your behalf to market and sell your company.

TimeFrame: Within 24 Hours

 

Step 4 – Seller Questionnaire

Once the Advisor Agreement is signed, we will spend time getting to know a lot more about you and your company so we can build a unique marketing strategy, business prospectus and a strong case to our buyer pool as to why your business is a fantastic purchase for them. This phase includes information gathering like the following:

  • Growth potential
  • Key team members
  • Competitive advantages

TimeFrame: Within 2 – 3 Days

 

Step 5 – Prospectus & Documents

This is the holy grail set of documents we use to market your agency to buyers. This is our chance to separate your business from the dozens of others that buyers are looking at each month and showcase exactly why your business is a fantastic opportunity for them. FYI – Before any potential buyers view this document, we require them to sign a legal non-disclosure form to ensure utmost confidentiality.

TimeFrame: Within 3 Days

 

Step 6 – Deal To Market

We’re live! Your agency is officially on the market.

  • Our Buyer Database. Generally, 80% of our deals get sold to our existing database of buyers we’ve worked with in the past. Since we are meticulous in choosing the agencies we sell, buyers know us, they trust us and we’ve probably sold an agency to them in the past. Our database spans every state and includes large agencies that are interested in acquisitions and expansion opportunities, private equity funds looking to expand their portfolio and entrepreneurs who invest heavily in agencies & digital businesses around the country.
  • Our Marketing Channels. There are always new buyers coming into the marketplace across the country and globe, and we know how to reach them. Our team uses 11 marketing channels that are targeted specifically for your type of business. No two marketing strategies are identical. We know every agency is unique, and we treat the marketing strategy as such.

 

Step 7 – Buyer Inquiries & Vetting

As a result of our all-out marketing assault, we immediately garner significant interest from buyers who want to learn more. It’s important to note that not all buyers are the right buyers. It is paramount that the company or person who purchases your company will be able to successfully step into your shoes. We spend a notable amount of time getting to know each potential buyer and vetting them to see if they are a good fit for your particular agency.

Once our team has fully vetted the buyer and they have signed a non-disclosure and confidentiality agreement, we will share additional information about the agency and spend time answering all of the questions they have about your agency.

TimeFrame: Within 1 – 2 Months

 

Step 8 – Negotiate & Accept An Offer

Interested parties submit an initial offer (this is called an LOI, or Letter of Intent). We work on your behalf to negotiate the price and payment terms, using our expansive knowledge in selling businesses to justify why buyers should pay top dollar on favorable payment terms.

We work together to decide on the best buyer for you – discussing variables like the offer price, payment terms, requirements post-sale and the details of the buying entity. When you’re happy, we accept the offer.

TimeFrame: Within 7 – 14 Days

 

Step 9 – Due Diligence

The winning buyer gets an opportunity to dig deeper before they commit to the final purchase – verifying all of the company details we have provided up to this point. The initial offer, or Letter of Intent, provides specifies how long the buyer is entitled to conduct their due diligence. Generally, the more complex the agency, the longer the due diligence process.

TimeFrame: Within 2 Weeks – 2 Months

 

Step 10 – Contract Development

In most cases, when selling you marketing agency, the buyer is responsible for developing the contracts used to purchase the agency. Once the buyer provides preliminary drafts of the contracts, we spend significant time reviewing them to ensure all agreed-upon items are accurately reflected in the documents.

In addition, we always recommend that you also use a seasoned Business Attorney for another complete review, as the contracts will protect your interests after the sale.

TimeFrame: Within 2 Weeks

 

Step 11 – Money Is Exchanged

Contracts are signed, you’re paid and business assets are transferred to the buying entity. We are also paid at this time.

TimeFrame: Within 2 – 7 Days

Step 12 – Post Sales Training

After the deal closes on selling your marketing agency, there is a transition period where all facets of the agency are transferred over to the new ownership group. Undoubtedly, there will be some sort of training you need to do to make sure the buyer is off and running in their new business. The specifics of your requirements post-sale are negotiated and agreed upon before the deal closes.

TimeFrame: Within 1 Months – 3 Years


Buying A Business: Where To Find Financing For A Business

If you’re considering buying a business in the near future, it’s a good idea to understand the different financing options that exist. Buying a business is most likely one of the most expensive and important purchases you will ever make, it is imperative to have qualified professionals guide you through the process. A knowledgeable business broker can guide you through the options and help you choose the method of financing that is right for your particular situation.

1 – SBA:

Put simply, an SBA loan is a small business loan that is partially guaranteed by the government (the Small Business Administration), which eliminates some of the risk for the financial institution who is issuing the loan.

You read that right – it’s not the SBA who is doing the lending. The SBA works with a network of approved financial institutions (typically, traditional banks) that lend money to small businesses. SBA loans can be valued from $500 to $5 million, opening SBA financing options to a wide range of businesses. Because the SBA partially guarantees the loans that these lenders extend to small businesses, lenders extend funding more frequently and with better terms than without the SBA backing.

When going through the qualification process, SBA backed lenders will take a close look at the business in question, as they will want to make sure you can repay the loan and still continue to operate the business.

Financing A Business In Today's Market

SBA lenders will also look for a buyer with strong experience, 10-20% down as a cash downpayment and a solid credit score (over 680). Buyers are required to personally guarantee the loan and they may have to provide additional security in the form of assets they own.

SBA loans to buy a business have a guarantee fee, typically starting at 3% of the loan amount, and lenders may charge packaging fees of up to $2,500. There may also be other fees associated with an SBA loan to buy an existing business, such as application fees, third-party closing costs, or prepayment fees.

The upside on utilizing a SBA loan is that it is cheap money for the buyer (as compared to other options for financing a business). It also allows a buyer to purchase a business that may have seemed out-of-reach without significant financing. On the other-hand, in order to secure a SBA loan, a buyer may have to pledge a significant portion of their personal assets in addition to providing a personal guarantee.

Sellers also benefit from a SBA loan, as they will usually get of the purchase price upfront in cash (at least 80%).

When financing a business, it’s always a good idea to talk to multiple SBA lenders, as some banks prefer certain types of businesses over others.

 

2 – 401K/Retirement Plan Rollover:

A Rollover For Business Startups, commonly referred to as a ROBS, helps you access your retirement savings for financing a business purchase without paying taxes or early withdrawal fees – making it a great way to fund all or a portion of the purchase price.

A major upside – the speed. In a Rollover For Business Startups, the funds are generally available in two to three weeks, which is 4 times as fast as traditional bank financing. Another major positive, you’re tapping into your own money, not taking our a loan, so there is no debt and there are no future payments required by a lender.

how to finance a business

In simple terms, you transfer your retirement account to a service company (very much like a 1031 exchange intermediary). They will act as your trustee and purchase shares of your new company.

By doing this, you can access your retirement account without having to take a taxable distribution. You can also mix this capital with other sources of funds.

The upside in this case is the buyer is completely in control of his or her funds and enters the business with little to no debt. The downside of this type of financing is that in the event the business fails, the buyer may loose her or her retirement funds.

It’s also important to note that there are a lot of rules associated with this type of funding, so it is imperative to involve a professional business broker during this type of funding.

 

3 – Traditional Bank Financing:

Securing funding for buying a business from a bank is very similar to SBA financing, but without the backing of the Small Business Administration. Banks like to see buyers with a strong background and an adequate down payment – usually 10-20% of the purchase price.

 

4 – AR Funding:

Existing businesses use AR funding to help alleviate cash-flow concerns or to help keep up with rapid growth. When funding a business, AR funding can be helpful in bridging the gap between the sellers expectations and the buyers available cash as well as provide the buyer with operating capital they may need to operate the business when they take over.

A 3rd party company will purchase some of the receivables (usually 60% or less) and charge a daily fee until they are paid. The cost of this type of financing is high; however, these are usually very short terms loans so depending on the cash needs of the parties, A/R funding is a good way to receive funds in as little as four to five days.

 

5 – Seller Financing:

Seller financing happens when the owner you’re buying your business from agrees to finance part or all of the purchase price. Sellers open to seller financing will typically finance 15% to 60% of the purchase price of the business they’re selling. This can help borrowers with less than prime credit profiles gain access to affordable financing they may be unable to get otherwise.

how to finance a business

Over the past few years, seller financing has become a key element in financing a business, especially in businesses that have some level of riskiness (rapid growth, short time in business, etc). Seller financing also sends a strong message to the buyer that the seller is confident in the continued success of the business.

There is a lot of upside to this type of financing for both parties. Businesses that utilize seller financing typically close faster than those that use a more traditional bank or SBA backed loan. The seller essentially acts as the bank, so they get to make the decision with regards on who they will finance, how much they will accept, the interest rate, and the term. The seller is in the first position, so if the buyer defaults, they can take the business back quickly, without delay from another lender and get it back on track if necessary. In addition, seller financing may offer a tax benefit to the seller since they can defer some of the tax due on the business until full payment is received.

 

6 – Earn Outs:

Earn-out financing involves a certain dollar amount or percentage agreed on by the buyer and seller to be paid to the seller based on the performance of the company after a set amount of time has past after the ownership transition is complete. Earn-outs can be structured in a variety of ways and can be based on different financial benchmarks such as company’s revenues, gross profits or net income.

Earn-out financing is often used by companies that are in a turnaround situation, when buyers are purchasing on potential, rather than historical cash flow or when purchasing a business that is considered risky. Earn-outs are tricky and can carry risk for both parties. It is essential to have earn-outs written properly and that both parties throughly understand the terms of the earn-out.

Buying a business is most likely one of the most expensive and important purchase you will ever make, it is imperative to have qualified professionals guide you through the process. A knowledgeable business broker can guide you through the options and help you choose the method of financing that is right for your particular situation.


17 Tips For Selling a PR Agency For Top Dollars

Tips For Selling A PR Agency For Top Dollars

Selling a PR Agency For The Best Price

You founded your PR firm, took the time to grow it, and now are reaping its benefits, but the time will eventually come for you to sell it. Maybe you’re at the top and are ready to strike while the iron is hot, or maybe you’re ready to join forces with a larger agency. Regardless, there are a few things you should do while you’re embarking upon the exit process. These tips for selling a PR agency will help you get top dollar for your firm.

1 – Streamline, Organize & Document Everything

Before selling a PR agency, take some time to streamline your systems to reduce waste, organize the company’s technology assets (like a CRM) and optimize your organizational and personnel structure. Think about your firm as if you were out of the picture…would it survive? If not, what can you do to make sure the walls don’t crumble if you’re gone? If you don’t already have thorough documentation of the ins and outs of your firm’s processes for key areas of the business, this is the right time to get those in place. Sophisticated buyers willing to pay top dollar for your PR firm will want to see a well-oiled machine that has proven systems and processes implemented company-wide.

2 – Make Your Biz Dev Process A Well-Oiled Machine

Business development is a really big deal to buyers! Given that most PR firms don’t have a lot (or any) collateral assets, a lot of the “secret sauce” lies in the way the firm gets new business. Do whatever you can to systemize this process, ideally in a way that doesn’t center around you. Even if you’re looking for a strategic buyer that will keep you on board for several years post transaction, buyer still want to see a clear business development process that operates without the founder leading the charge.

3 – Get Better Contracts

PR firms with long-standing, foil proof contracts sell for a significantly higher multiple than those that are project based. Often times, PR firms or agencies specializing in corporate communications have retainers in place with their clients (good!) but they have a simple 30-day out clause. Buyers like to see strong contracts that can be transferred over to the buying entity at close.

4 – Get Your Financials In Order

You need to have an accurate picture of your financials in order to sell your PR firm for the best price. Seems obvious right? In order to convince a buyer your firm is the right purchase for them, you need to know exactly what is coming in and out each month. Now is the time to take your mother-in-law off payroll and remove your business credit card from your Amazon account. For larger agencies, try to put non-revenue producing line-items (like labor for R&D) as a standalone line item on your P&L so buyers can easily add these back into their financial calculations.

5 – Find A Quality M&A Advisor To Sell Your PR Firm

Many buyers of PR firms are going to be large marketing agencies looking to acquire a strategic bolt-on that specializes in corporate communications. These buyers will understand the cross-sell opportunities available to them on day 1 and will appreciate the holistic approach to client services that PR firms generally undertake. Using an advisor who understands this dynamic is crucial. This could be the difference between selling your PR Firm for the best price and not. A quality advisor who understands your niche and industry (this is key) will be able to give you an accurate valuation, produce professionally designed marketing materials and most importantly, tap into their network of ready-to-go buyers. A great advisor will be worth their weight in gold at the end of this process and will absolutely help you sell your digital agency for the best price. If you need to connect with us, you can do that here.

6 – Figure Out What Your PR Firm Is Worth

Now that you have a clear understanding of where your company stands financially, it’s time to give it a valuation. A PR firm is only worth what the market is willing to pay for it, but there are some tried and true factors that go into a successful valuation. The firm’s revenue & profits, operational structure, years in business, supporting technology, growth opportunities and the current buyer pool are just a few of the factors that go into determining a valuation of a business. This is where it gets a bit tricky, and a good advisor is going to have unparalleled knowledge to price your PR firm just right to sell. (We can help, schedule an intro call here).

7 – Build Relationships With Seasoned Buyers (Or Hire Someone Who Already Has Them)

Unsurprising news flash – existing relationships with a pool of seasoned buyers is still the absolute best way to sell your PR firm for the best price.

If you’re using a business broker or M&A advisor, make sure to ask about their existing relationships with buyers in the marketing and agency space. They should have solid, and long-standing relationships with seasoned entrepreneurs and strategic buyers who are always on the lookout for their next opportunity. At Barney, over 80% of the Public Relations firms we sell get sold to an existing buyer in our database. We can’t stress this enough – these relationships are crucial!

In Conclusion…

If you decide to start and eventually sell an agency, there are things you can (and should) do to help prepare your agency for an exit. We can act as a resource along the way, don’t hesitate to reach out with questions! Connect with us when you’re ready!