Stock Sale VS Asset Sale

Not All Sales Are Created Equal: Stock Sale vs Asset Sale 

The best-sellers are informed sellers. Knowing your options and what they entail before they require you to act is both smart and efficient. It will save you time and headaches when the moment arrives to have a mental image in mind of what each separate transactional avenue – the stock sale vs asset sale – could mean for your business, for you, and for your buyer. 

In a stock sale, all the items on the books of a company and all existing contractual agreements are left untouched. From asset amortization to zero-layoff policies, this type of sale is merely a matter of moving all the equity to a new owner while the entity itself remains just as before. 

An asset sale, on the other hand, requires the itemization of all assets of the business followed by a transfer of the assets to a buyer’s new company that will then be the new owner of these current assets. The typical assets this will include are licenses, goodwill and equipment, above all. Typically, an asset sale will be cash-free and also debt-free, retaining the debt obligations in the existing entity. 

Lock, Stock, and Barrel

The stock purchase option means going all in – all current assets and liabilities included. While the asset sale will enable a buyer to take a buffet approach, the stock purchase is very much the fixed menu, wine pairing included. That usually makes for the more straightforward deal, even if it can entail additional due diligence since no itemization takes place that would exclude certain assets from consideration. In other words, the stock sale has the advantage of bypassing the time-consuming re-evaluations and reassignments of a potentially long list of assets to be transferred. However, in most cases, this process is worth the effort for a buyer and trumps the stock sale. Here’s why.  

Stock Sale vs Asset Sale: Goodwill Hunting

Buyers are keen on individual assets because they get to mark up assets in line with their fair market value once they have been transferred. This enables a buyer to depreciate them again as opposed to acquiring their existing depreciation on the books when purchasing equity. In addition, buyers can gain a significant tax advantage from year one in an asset sale by amortizing goodwill – the value paid in excess of the cost of tangible assets. So, while goodwill is not tax-deductible in a stock sale, it can be tax-amortized over 15 years in an asset sale. Particularly in the agency space, where businesses thrive on intangibles such as client lists, this can make all the difference on the books of a new entity. 

Limited Liability?

The upsides of selective asset purchasing while skillfully transposing these onto a buyer’s books may make the asset sale appear more seamless than it actually is. In reality, things can get choppy even when the transfer of liabilities is kept in check. Existing contracts moving to a new entity will likely need to be renegotiated, for example. This can apply to client contracts as much as it can apply to employment agreements. So, while the liabilities on the books may seem manageable, business continuity itself may come into question more easily with an asset sale. It’s also worth remembering, from a seller’s perspective, that since unpurchased assets and liabilities don’t just disappear, a seller will be left to clear these, over time. 

Getting Your Assets in Gear

When it comes to stock sale vs asset sale, generally speaking, sellers want to sell stock and buyers want to buy assets. Avoiding costly backtracking that can also reduce credibility when negotiating can be accomplished by getting a head start on what’s to come. Getting divergent interests aligned and making a seller aware of the scenarios at play is part of the job of a seasoned M&A expert. Ultimately, understanding the consequences of each sale option before putting a deal together will help ensure a smoother transaction and line up a win-win outcome. Knowing your asset sale from your stock sale will also allow you to ready your accounting and ensure you get things done by the book. 

 


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.   


How to Raise The Value of Your Marketing Agency Without Raising Revenue

Top-line growth is only one end of the P+L statement. Business owners that are not just sales-minded but understand operations just as well, know that their margins can be improved elsewhere too. Although an early-stage business will need revenue to demonstrate traction and proof of concept, a company with enough track record – and one that is looking to sell – needs to do better than that. EBITDA will take center stage for a buyer looking under your financial hood – and there is plenty of ways to raise the roof on your EBITDA without having to drive sales. Especially in the current market environment that is still demonstrably shaken up by the ongoing pandemic, structural readjustments and remote work are redefining operations. If you are looking to drive up your bottom line as you line up a sale, we recommend you take a closer look at our five business hacks to raise the value of your marketing agency without the need to raise revenue. 

Five Business Hacks To Raise The Value of Your Marketing Agency

The Roof Overhead is an Overhead

Office leases, in particular, are dead weight in the current market environment. Long leases are not integral to the business of most marketing agencies – something that is especially obvious since 2020 and the proof of remote work as a key component of business in the digital age. As tools to work remotely become smarter and employees become more accustomed to them, it is worth reconsidering if that office lease or that prestigious address on the business card are worth their costs. No less, co-working spaces, insofar as they are open for business, offer a smart and flexible alternative. Why not survey your team to see how many days a week they would be happy working remotely and scale down accordingly? 

Automate Where You Can

Automation and streamlining are essential ingredients to your margin improvement. Revisit your processes, workflows and operational architecture to check on where there is still room for automation improvements. Tasks that should raise the automation flag include tasks that involve compliance and audit trails, that require multiple people to execute or that are especially time-sensitive. 

From invoice generation to time tracking and from automated workflows to streamlined communication through project management tools with automated notifications, the world of business process automation is yours for the taking. Things to keep in mind are that no tool is a cure-all and any tool is only as good as its implementation. Set goals, assign accountability and measure your results over time. Your reduced likelihood of error and improved productivity will work its way into your margins in the medium to long term.  

Improve Your Brand & Increase Prices

When was the last time your brand got a shake-up? Are your website and your logo still a little too close to when you first launched? It shouldn’t take a Fortune 500 company in the public eye to make rebranding relevant. Give your look and feel a lift that will strengthen your positioning as you gear up a sale – and that can help you justify giving your prices a lift along the way.  

Invest In Your Team

Most importantly, take a good look at your team. They will be the ones carrying your agency not only over – but past – the finish line as you execute on a potential exit. Who are the top-tier candidates that will shoulder your agency and drive the business at this critical juncture? Invest in these individuals and shed any excess weight as you close in on the valuation home stretch and drive up the value of your business. 

Future-Proofing In Times of Crisis

It may be a cliché, but that doesn’t mean it’s not worth taking note: there is opportunity in crisis. Even if you are not looking to make a sale just yet, these are things you can do to improve your operational resilience. Take advantage of the current reshuffle. Let it serve as an eye-opener as to how to cut costs and restructure your business to help bring the value of your marketing agency to where it needs to be so you can turn it into a listing no buyer would overlook.


How Long Does It Take To Sell My Marketing Agency?

When you finally say to yourself, I want to sell my marketing agency, you may think that things will move quickly. But the reality is that the waiting can be long and is often the hardest part. Normally – the process in its entirety is 3-4 months. However, knowing exactly what happens before, during, and after the sale of your marketing agency should provide the needed transparency to help you manage the process. Ensuring that the process is followed and handled professionally will make sure that counting the days was worth it in the end. Here, we help you understand the necessary steps – and the expected timeline attached to each of them – so that you can get a clear understanding as to how long it takes to sell your marketing agency. 

Sanity Check

First things first. Before you jump into the deep and run the risk of amping up the expectations, you may want to ensure that you are ready to sell in the first place. Has your agency been showing sustainable growth, year-on-year? Are your margins raising eyebrows or just red flags? Are you delivering an EBITDA of $500k and up? If you need a quick reality check and a reminder of what an agency buyer will be looking for in the first place, take a look at our article dedicated to just this here

The Timeline to Triumph

While there is some flexibility around the exact duration of each element required to make the sale of your agency a success, the process that will take you there is very defined. Normally – the process in its entirety is 3-4 months. Here is the step by step:

  • Initially, there is a valuation period before any agency owner enters the circle of sellers. This period requires the vetting of financials to get an accurate picture of what’s on offer. Once a price is agreed upon, the listing agreement is prepped and signed before a listing goes live. Expect this readying stage to take up to 1 week. 
  • Once your listing is live, it’s showtime. We do our homework on who would make the perfect fit before we scour the network to align your positioning and performance with a buyer’s long-term goals. We give this stage a solid month to generate enough leads in order to begin issuing a first term sheet.
  • Once there is a genuine offer in place, expect a further two weeks to transform those initial leads into a detailed LOI. 
  • Finally, turning a serious buyer’s intention into a closed deal will take…well, it will take the time it takes, really. The due diligence timeline is correlated with a buyer’s thoroughness and a seller’s previous processes. As a benchmark, we attach an expected duration of 45 days – but that can move in either direction. Expect to be able to improve on this timeline with more sophisticated buyers that have gone through this before. In addition, the required paperwork to close a deal will be produced during this 45-day window, which takes into account a small buffer for the required back and forth.

Timelines Vary

Depending not just on the experience but the type of buyer, the pace of the process can move in either direction as well. Strategic buyers with an eye for an operational fit will typically move faster while entrepreneurial types will take more time as they are likely entertaining more options. Financial buyers will put their targets through a Quality of Earnings report (think of this like a mini-audit), which can add another 3-5 weeks to the process.

Beyond getting the alignment right, which is something out of a seller’s hands, a seller can help shorten the timeline as well. If a buyer and seller remain in agreement with the initial closing docs, and if a seller is well-organized and on top of his operations and financials during the due diligence process, this will help drive up confidence and drive down duration.  


Does Your Agency Offer What A Buyer Wants?

Did someone say, “seller’s market”? Yes, indeed, we did. Now, does that mean your agency is automatically at the top of every potential buyer’s list? Unfortunately, not. Or, “thankfully not”, is what we ought to be saying since making the right kind of match happen is where long-term success rests. In other words, long-term success is about making sure that you don’t even begin the buyer-seller dance with buyers who aren’t suited for your offering. So, how can you make sure that there is an alignment of offer and potential buyer, how can you improve your digital agency value, and finally, does your agency offer what a buyer wants? 

The Buyer’s Wishlist

We’ve put together a list of key items that will entice just about any agency buyer, and that an agency owner can consider as transactional glue on their way to seal the deal. 

Retainers over projects: Retainers spell income visibility. Projects, while potentially lucrative in the short term, also spell potential volatility. To keep them coming in, the required sales effort and associated costs add to the challenge of making a dependency on projects look like an attractive prospect. Of course, a mix of both is not in and of itself unattractive, but keep the balance solidly tilted on the retainer side. Pay special attention, all you SEO and PPC agencies, as this speaks directly to your business model.   

Year-on-year growth: This isn’t Silicon Valley, and your agency is not a SaaS startup. Agency buyers are not the VC types looking for triple-digit percentages growth. Steady does it – because steady growth means managed growth. It means your growth was not part of a fad or a fluke. And it means that your growth is not only sustainable but responsible. Growth is not an isolated metric; it’s tied to everything from hiring and overheads to your value proposition and your sales cycle. When all these things are in line, your year-on-year growth will be a sign of stability, skill and success.

Sustainable margins: In line with this kind of well-managed growth, come sustainable and reasonable margins. Reasonable because repeatable. No buyer wants one-off success. Buyers are looking for structured businesses, not side gigs. That means functioning operations and an engine room that keeps churning out an EBITDA of 20-35% – with some margin for crisis-based deviation.  

Processes over relationships: Processes mean success is business-owned and won’t leave the business as an owner takes their final bow. Success that is tied up in specific relationships, is not transferable – and not repeatable. Think of it this way: can a new owner, with the same skills as the current one, continue to scale your agency? That’s your litmus test right there. 

Challenge Yourself to a Pre-Mortem and Improve Your Digital Agency Value

There are plenty of buyers available on the market right now, so that won’t be where the failure to sell your agency lies, so challenge yourself to this pre-mortem scenario: it’s 6 months from today and you weren’t successful in finding a buyer in spite of actively trying to sell your agency. What did you do wrong? Turn our buyer’s wish list into your seller’s checklist to improve your digital agency value and make sure your agency’s offering is aligned with what buyers are after. 


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.


Six Ways A Business Broker Can Help You Sell Your Agency

Are you preparing to sell your marketing agency or PR firm and considering hiring a business broker or M&A advisor? If you have never put a business on the market before, your head will likely be ringing with questions like the following:

  • How does the sales process work?
  • How do I value my agency?
  • How do I identify my ideal buyer?
  • How do I get the word out about the sale?
  • What will it cost me to sell my business?

Once these questions start falling in your mind like rain, you’ll hear a great crack of thunder as a final question strikes you like a bolt of lightning:

“Do I even need a business broker? Why not just take this to market myself?”

Before you decide to put your business up “For Sale by Owner,” you should be clear on the expertise – and dare we say value – a broker brings to the table. After all the work you’ve done to build a business that’s worth selling, you owe it to yourself to make an informed decision.

That’s what this article will do: provide the information you need to decide for yourself. So let’s go for broke (pun gleefully intended) and dive into just what it is that business brokers do.

Valuation

If there’s one thing you should know about valuation, it’s never to take it at face value. There are many paths to determine the market value of your business before you put it up for sale. But not all of them are worth their salt.

Let’s say you’re a service-based business, such as an agency. In that case, a valuation based on the value of your physical assets makes zero sense. Other methods that rely on fuzzy factors such as goodwill can also steer you down the garden path.

The truth is, a business’s value may differ depending on context and the needs and preferences of buyer and seller.

So how do you climb out of the subjectivity hole and get a meaningful valuation? For starters, you can have a chat with an expert on business valuation – your friendly neighborhood business broker.

He or she will likely combine a variety of valuation methods, each of which is weighted and prioritized according to your market, industry, business model, and financials. At Barney, for example, we consider 14 different factors, starting with your year-over-year earnings.

Sound like higher mathematics? It’s really more a cocktail of experience and good sense. However your broker shakes the tumbler, the result will be far more accurate than a valuation based on a single method only.

Do not underestimate the power of accuracy. A listing price that reflects the true value of your business drastically increases your chance of getting a desirable offer from a buyer.

Confidentiality

Do you know the saying “discretion is the better part of valor?”

Actually, the saying is “valor is the better part of discretion.” But let’s leave our Shakespeare at the door and just point out what every business broker knows: discretion is the key to a sweet deal.

If you are selling your business independently, maintaining confidentiality can be challenging. You will face many temptations, from spilling the beans to an employee whose career prospects are dear to you, to being loose-lipped with a vendor, who may leak word of the sale to a competitor.

Pitfalls and pratfalls like this can destroy a deal before it’s sealed.

A business broker knows the value of discretion and the meaning of the word “mum.” He or she will keep your sale strictly confidential and ensure that information is released on a schedule rather than a lark.

Marketing

Selling your business on your own has its attraction. You can take all the credit if the sale goes well, and you get to keep all the money.

However, you might not have factored in the marketing costs and resources that a successful business sale requires.

From email campaigns to direct mailing, online advertising, social media marketing and word of mouth, the marketing muscle you will need to flex to receive your desired asking price can be massive. If you’re not careful, you’ll find yourself feeling the burn.

This is where a broker can be a lifesaver. A seasoned business broker has access to networks of buyers and databases beyond your wildest dreams.

Tapping into a broker’s marketing capabilities can save you time, energy, and money. It can also help you reach your ideal buyer. That means a better deal and a better night’s sleep.

Negotiation

Is negotiating with lawyers your idea of fun? Then by all means, go it alone when selling your business.

However, if you prefer to outsource legal wrangling to those who know the rules and regulations and can handle smooth-talking attorneys, a business broker is the way to go.

That’s right – we said attorneys. Often you’ll be dealing with more than one. A business broker knows the ropes and won’t get rattled when the buyer’s and seller’s attorneys go head to head.

Another legal area in which a business broker can make your life easier is lease negotiation. If a buyer needs a new lease for your business location and you botch the discussion with the landlord, the deal could fall apart.

In such cases, having a broker handle the negotiation can give you a new lease on life (yes, we own that pun, too).

Financing

Speaking of puns, you can bank on a business broker to have solid banking contacts. If your buyer needs financing to purchase your business, using the wrong lender can cost you months and imperil the sale.

Brokers are well versed in which lending sources to tap for which transaction and spend their careers building reliable contacts in the world of finance.

You may be great at financing a business. But this knowledge won’t always apply to your buyer’s situation. A broker will know exactly who to call – and how to make, not break, the deal at hand.

Emotional Support

Last but not least, taking a business to market is an emotional roller coaster ride. There’s more at stake here than when you’re selling your tamagotchi collection (and that’s saying something).

When emotions get high – be it during legal haggling or at the closing table, a business broker can provide perspective, empathy, and support. Whatever issue you encounter, your broker has been there before and can guide you through the haze.

That can’t just get you to a sale. It can keep you out of the looney bin.

That’s a Wrap!

Now that you know what a business broker does, you should have a good grasp of the advantages of working with one. We’re happy to offer more reasons – or to help you sell your business. So don’t be a stranger, hear? Connect with us 🙂


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


How Much Is Your Digital Marketing Agency Worth?

Whether you’re buying a marketing agency or selling your own, it’s vital to understand how the industry values agencies! We’ve outlined the basics so you have a good understanding of how to value a marketing agency!

Unsurprising news flash: the size of your digital agency will have a big impact on how much your marketing agency is worth to buyers.

If you are a $2m a year in revenue agency, you can expect to sell your agency for 2-4x EBITDA.

If you are a $10m a year in revenue agency, you can expect to sell your agency for 6-12x EBITDA.

Bigger agencies sell for a higher multiple of EBITA because they are less risky for buyers. The main differences being that if you are a bigger agency, you probably have less likelihood that a few bad employees or clients could hurt the acquisition, and the business is probably more scalable in general. Seems obvious right?

Okay, so the question is, how do you determine where you fall within the multiple range? The difference between a 8X EBITDA multiple and a 12X EBITA multiple for a $10M in revenue agency could be a difference of $5M – $10M dollars in the sellers pocket at the closing table. Needless to say, this is important.

In today’s market, everything from the management structure to the make-up of the revenue stream is considered when determining how much a marketing agency is worth. Bring in the 14 metrics that go into determining how much a digital marketing agency is worth. Buckle up, this is exciting stuff.

The 14 Factors That Determine How Much Your Digital Marketing Agency Is Worth:

When determining how much your marketing agency is worth, there are 14 factors we consider, with the most important being how much the company is making year over year.

Outside of going through these factors to determine a valuation and list price, there is another major benefit to having a detailed valuation system. Having a solid understanding of these factors allows our team to easily justify the asking price to potential buyers during the sales process.

For buyers trying to determine the value of a company, these factors are the must-ask questions before submitting an LOI.

1 – Earnings History:

When determining how much your marketing agency is worth, the most important factor is if it’s making money and how much money it’s making. If you’re familiar with EBITDA, you’re probably already familiar with SDE (Seller’s Discretionary Earnings), too, even if you’ve never heard the term. As a reminder, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization—essentially, it’s the pure net profit of a business.

Like EBITDA, business owners calculate SDE to determine the true value of their business for a new owner, so your SDE will include expenses like the income you report to the IRS, non-cash expenses—whatever revenue your business actually generates. Unlike EBITDA, though, you’ll also add back in the owner’s salary and owner’s benefits into your SDE calculation. Large agencies generally use EBITDA calculations to value their businesses, and small agencies typically use SDE, since small business owners often expense personal benefits and the buyers are generally solo-preneurs.

It’s crucial that prospective buyers understand SDE, too. Most likely, the agency owner will provide you with that number, so it’s important to understand how the agency owner reached that value, and what these values reflect about the actual agency.

To calculate your agency’s SDE: Start with your pre-tax, pre-interest earnings. Then, you’ll add back in any purchases that aren’t essential to operations, like vehicles or travel, that you report as business expenses. Employee outings, charitable donations, one-time purchases, and your own salary can all be included in your SDE. (Buyers might ask about your discretionary cash flow when you offer them your valuation, so be prepared to include and value each major expense or purchase.)

Simply put: when determining how much your digital marketing agency is worth, the most important factor is how much money the company is making.

2 – Time In Business:

Let’s keep this simple – this doesn’t matter A TON in determining how much your agency is worth, but for some buyers, this can be a notch in the right direction. The takeaway – once you hit the 3 year mark in business with steady or growing financials, you’re in the clear and this no longer becomes a crucial component into adding value or detracting from the value of your digital marketing agency. Five years plus – amazing! If you’ve been around for 20 years and have declining growth – your time in business can be a detriment.

3 – Revenue Streams:

The way that your agency makes money and the structure of those contracts is an important piece of the valuation puzzle. For some buyers, this is the golden ticket in determining how much your digital marketing agency is worth. We’ll want to have a thorough understand of how your agency makes money and we’ll also dive into questions like these:

  • Do you have long-standing, recurring contracts or is your agency project based?
  • How long are your contracts? Are they enforceable?
  • What is your client retention rate?
  • Do you have one really large client that makes up a significant part of your revenue or is your revenue dispersed among a lot of smaller to mid-size clients?

These questions will help our team determine the value of your digital agency and if revenue streams for your agency should add to the value or detract from it.

4 – Management Structure:

For businesses doing less than $10M a year in revenue, the owner’s role within the company as well as the structure of the management and leadership team is vital. In most cases in businesses of this size, the owner has a role in the day-to-day operation of the company, so buyers want to garner a thorough understanding of how the business will operate once you step-away. When determining how much your digital marketing agency is worth, we’ll dive into questions like:

  • What are the roles of each member of your management team?
  • How long have they been with the company?
  • What is their commitment to stay on board after the sale process is complete?
  • Who are other key employees that are vital to business operations?
  • How will the company culture be impacted if you were to leave?

5 – Seasonality

If your agency has significant peaks and valleys in it’s revenue due to seasonality, this factors into the agency’s overall valuation. This generally isn’t a huge issue for marketing agencies, but we have seen some cases where sales teams are more productive during spring and fall months, resulting in an influx of new customers during those time periods.

6 – Diversified Risk

Buyers will want to fully understand your risk portfolio and how that factored into the valuation of your digital agency. When determining how much your marketing agency is worth, we’ll want to understand:

  • Do you have significant monthly overhead?
  • What happens when you’re not there?
  • What is the churn-rate of your current clients?
  • What is the client concentration make-up? Does any one client make up more than 20% of your total revenue?
  • How is new business brought into the agency? How strong is the future-facing pipeline?
  • How long have your employees been at the agency? What are their long-term plans?
  • Do you have any loans, liens or lengthy contracts that pose a risk to the new buyer?

7 – Competitive Advantages

This one is pretty simple. The more niche you are, the easier you are to sell.

  • Are you hyper-focus in one industry?
  • Do you offer one service really well or are you a full-service agency that offers everything to everyone?
  • What do you offer that your competition doesn’t?
  • Does that help or hurt your business value?

8 – Growth Potential

The growth potential of your marketing agency is vital to understand when determining how much your marketing agency is worth. If you’re vertical based and the industry in which you operate is expected to skyrocket over the next 5-10 years, this has a positive impact on the valuation of your company. The opposite is true if you operate in an industry that is shrinking. In that case, the industry will have a negative impact on the valuation. During Covid-19, eCommerce agencies were selling for a massive premium, while agencies that focused in the hospitality and physical retail sector really struggled.

9 – Reputation

If you have a stellar reputation in your desired market, that has a positive impact on your business valuation. The same is true if you have a not-so-good reputation. When determining how much your digital marketing agency is worth, we’ll want to dive into things like:

  • What happens when a buyer Googles your name?
  • How are the online reviews for your agency?
  • Do you have letters of recommendation and testimonials from key clients?
  • What do your employees think about the company?

10 – Industry

For vertical driven or hyper-niche agencies, the industry in which you operate and the projected economic forecast for that industry will have an impact on how much your digital agency is worth. This can also impact the buyers interested in your firm. For example, if your agency offers paid media for the healthcare industry, a SEO agency that works for law-firms probably isn’t a good strategic buyer.

11 – Location

If you have a location-based digital agency, buyers want to see that the location has growth potential and that it is centered in a favorable business environment. While location is a factor in your business valuation, it’s importance is rapidly diminishing.

Keep in mind that most entrepreneurs are not locked into businesses within the zip code in which they live. In today’s digital centric business environment, seasoned business owners are able to purchase businesses (even those with a location focus) and run them digitally.

In the post-Covid world, buyers are looking for agencies that are successfully working remotely. If you have an office location, many buyers will look at how long you have left on your lease and use that as a key factor in their valuations. For buyers that are looking to make acquisitions of agencies with physical locations, mid-major markets are HOT right now! Strategic buyers already have offices in NYC and LA, so being located in Salt Lake City or Denver is a more desirable location for them.

12 – Comps

Similar to selling your home, it’s important to understand what other agencies have for in the last 6 months. Given that there are so many factors that go into understanding a business valuation, this isn’t as cut and dry as it is in real estate, but it certainly is a factor that plays into determining how much your digital agency is worth. After removing the outliers and odd-balls, we’ll carefully examine those transactions to determine what factors went into agreeing upon a final sales price. You can also take a look at our current marketing agencies for sale to get an idea of where the market is today.

13 – Transition Structure

Based on the buyer’s needs, a solid commitment to a transition plan can really bolster the valuation of the company. If there are time pressing health concerns and you need to exit the agency right away, this could have a negative impact on your agency’s value and what someone is willing to pay. On the other hand, if you’re willing to stay on board for 12 months (or even a few years) to ensure the new owner’s success, this could have a positive impact on how much your marketing agency is worth for a certain type of buyer.

14 – Other Assets:

If your agency has significant technology, intellectual property, lead producing materials or other assets that are of value to a buyer, we factor that into your valuation as a positive. Generally speaking, a SaaS platform that is only used to operate the agency does not warrant SaaS multiples.

How Much Is Your Digital Marketing Agency Worth?

If you’re looking for a free valuation of your digital agency, you can do that here. Our experienced team will give you a range as to what you can sell your digital marketing agency for today. Keep in mind that during the sales process, your team of advocates will be forced to defend exactly how the valuation was determined. Using an intricate formula will lead to a faster, more profitable exit as you sell an agency.