After many sleepless nights and too many grey hairs later, you’ve managed to establish a successful digital agency. But you didn’t stop there.
You decided to 10X your output with far less effort and can now run that thing on autopilot from afar.
So, are you done being a 21st century superhero that your smug cousins envy yet? Naaaaw.
You’re ready for what happens next!
As the most successful business owners always say, always have an exit plan.
The idea of selling an agency is daunting, but simultaneously, super lucrative.
Why would you want to sell your digital marketing agency that has been a source of income for the past few years or so? How will you know what your company is worth, and how will you sell it successfully?
First, you need an accurate business valuation. Then, you need to get all of the business affairs for a high-profit, well-established agency in order to maximize a sale.
While that’s basically the gist of it, there’s a lot more to it than just those two points.
Selling an agency might be a time-consuming process. But it’s so worth it in the end.
What makes it easier and faster is following a proven sales process that will ensure you get the best deal possible, reaping the entire orchard of juicy fruits of your labor.
Let’s get started!
The importance of understanding the selling process
When they realize they want to sell, most digital marketing agencies discover they simply aren’t prepared for such a process.
We may be well-experienced in the selling industry as marketing agency owners. But to be a successful agency owner, you’ve got to be connected to more than just one qualified buyer.
Otherwise, you’re left with two less-than-ideal scenarios:
Overcharging the buyer. Or underselling yourself.
Either situation is a total bummer.
Striking a balance here when selling a digital agency can only occur when a the owner understands the selling process and therefore, can make the most of it.
You can’t let your assets walk out the front door and lose your a$$ in the process!
So, here’s why selling a marketing agency is a great choice, but a choice that’s not for everyone in certain situations.
Why selling a marketing agency is an important decision
For some, selling a digital agency is an exit strategy when they’re already experiencing fatigue or ready to pursue retirement.
Burnout isn’t just for the employees and tires. Owners are also allowed to feel tired, and resting can sound like a really, really good idea.
A good sales deal also depends on the industry and the current position of the digital agency. Strike while the iron is hot, they say. It’s good to go out while you exceed performance expectations rather than experiencing negative growth.
Business leaders keen to explore more, whether in and out of their current niche, will always think like industry leaders. They will opt to sell to close ‘another business chapter’ and welcome a new challenge.
Besides, if you’ve liquidated your well-established organization, you can then diversify the finances and build more empires.
Understanding the market: Key factors to consider
You might already know someone willing to buy your company. But pitching an estimated value just because you think this is what your agency is worth may not be the best course of action.
Instead, you need to consider the areas that can influence the value of the agency.
Here are a few factors to consider:
- Agency earnings
Marketing agencies with recurring revenue may attract a potential buyer more than an agency with a lower profit margin.
A balance between profits and operational capability is essential to make the company easier to sell.
- Client list
- A strong client list can add more value for a prospective buyer
Do you have high-volume or just project-based work? What about high-ticket clients?
If buyers see how patrons continue to purchase the products and services, they know the agency is well-trusted, with their loyalty retained.
So, build a list of high-customer lifetime value (CLV) clients and retainer contracts that can offer a steady income for the agency.
- Team members
The current organizational structure can also impact the digital agency valuation. Hopefully, the next owners will absorb your roster of employees who exhibit knowledge and expertise.
Also, employees with long-standing relationships and seasoned team members can contribute to more efficient operations after you sell your agency.
- Overall management
Businesses that operate efficiently and have their production processes in order usually expect a higher price for their agency.
Top-notch operations management and automated business development systems are easier to sell because they can operate and continue running as usual after the sale.
- Failure points
Failure points are the agency pillars that, if removed, will heavily impact the company.
If our company relies on only a couple of great managers or we only have that one client from whom we get our recurring revenue, losing them might make the company cash flow slow to a mere trickle.
So, reducing the number of failure points and creating contingencies helps attract more buyers for your business.
- Business specialization
Another critical factor we can look into is the agency’s position in the industry.
The specific niche our agency is working on can dictate how heavy the competition is, how saturated the market is, how the agency will expand, and how long the agency will last in that market.
When we have room to scale in the next few years, buyers aren’t worried about the agency’s growth, which increases the company’s value.
A 5-step guide to selling digital agencies
Selling your digital marketing agency doesn’t need to be overwhelming with these 5 easy steps.
In this guide, we’ll walk you through the entire process and help you connect with the right buyer.
Step 1: Preparing your agency for sale
One of the key strategies for selling your digital agency is to know what to do before listing it. Take the time to sort out not only the company’s finances, but also its overall operations.
- Streamline and automate processes aligned with scaling a marketing agency, like optimizing workflows for your HR and creative team.
- Create a profitable technique that anyone can replicate, especially for managing tech programs (CRM database, social media accounts, content marketing, etc.) and sales funnel applications.
- The company’s SOPs, manuals, and policies will be turned over to the next management, so keep them up-to-date religiously.
This helps the new business owner to efficiently continue operations and marketing, which are vital systems to keep the organization running smoothly.
Also, knowing that your affairs are already in order also shifts the focus to taking care of customers and preps the agency for growth.
Step 2: Accurate valuation of the agency
You might be thinking:
My hunch says that may business might be worth more than X amount. I would sell my marketing agency for $$$.
Business owners would like to get as much from a sale as possible when selling their intellectual property. While there may be a lot of emotion to this calculation, it’s really just logical, hard numbers.
Ultimately, the value of an agency and how much you can get for it is backed by proof, metrics, and accurate computations.
Primary and secondary calculation methods
The primary methods for calculating your company’s worth are based on comparative analysis, especially today when other companies in the market are looking for investors and buyers for digital agencies.
Smaller digital agencies use seller’s discretionary earnings (SDE) to measure the company’s rough value, including the owner’s compensation since it is difficult for small businesses to separate this component.
Another computation method is basing the business worth on the earnings — before interest, tax, depreciation, and amortization (EBITDA). Typically, larger agencies exceeding 1 million dollars in earnings rely on this method to clearly estimate how much their company is worth.
SDE and EBITDA calculations are then subjected to a valuation multiple, usually by 20x-40x for marketing agencies.
So if your digital agency earns $10,000, you may be able to sell anywhere from $200,000 up to $400,000.
The most-used advantage when we put the business for sale is its unique selling proposition.
Customers’ reviews or testimonials and obtained trademarks and copyrights are strong points that can increase the market value.
Step 3: Finding prospective buyers
Strategies for attracting the right buyers require a due diligence process.
You must investigate capacity, risks, legal and audit compliance, and business opportunities.
Potential buyers will have at least a couple of queries along with their offer, so it is essential to keep these business papers in order:
- Balance sheet for 3 years listing the accounts payable and receivables, profit and loss statement to show the company’s growth trends and patterns
- KPIs that demonstrate the solidity of our company’s saleability (churn rate, net margins, campaign turnaround rate, utilization rate, employee engagement rate, among others)
- A pipeline of projects, company history to prove longevity, a list of high-profile clients, and other data that shows our business can scale exponentially.
It is essential to provide an honest run down of the current cash flow, debt and payables turnover ratios, and everything coming in and out of your accounting book. This will give the potential buyer a fully transparent idea of how sound the agency’s financials are.
You can also consider hiring a quality mergers and acquisitions (M&A) advisor who will assess the best price for you company and produce marketing materials that exhibit its growth opportunities and true value.
Having all this business information and data on hand is necessary because it is also an opportunity to cross-check buyers whenever you pitch. Once potential, vetted buyers submit their letter of intent that matches your terms, you can start negotiating the sale.
Step 4: Negotiating the sale for achieving a win-win outcome
The next step in selling a company is to find the most efficient marketing strategy so you can reach the right buyers.
You can either hire a business broker or sell on your own. But be sure to consider both the pros and cons.
Most agencies that hire a business broker give them access to a vast network and market connections to sell at a maximum profit.
Searching for an experienced (and reasonably priced) broker may be tricky. But once you do, building trust and managing your expectations is important.
Having a broker also helps facilitate and expedite the process because they already know the ins and outs of the transaction.
However, while a broker will save you from drowning in paperwork and other hassles, it also means paying service fees that can affect the pricing percentage.
On the other hand, when selling a digital marketing agency solo, you need oodles of patience, time to leverage your network, and endurance to handle every detail solo.
The DIY option will likely eat into your schedule while you’re still running the business. But if you accept the challenge, you get to enjoy a larger percentage of proceeds from the sale.
When you start negotiating the sale with the potential acquirer, bear in mind these key considerations:
- Any long-term payout exceeding 12 months is a red flag because it may mean the potential buyer doesn’t have enough capacity to finance the deal
- Purchases that are partially based on market shares can be risky since the future market performance of your ‘ex-company’ is uncertain
- Hiring a business lawyer that is an expert in the time-consuming M&A process and documentation can help you monitor and evaluate the broad view and do the heavy lifting when it comes to the legal side of selling the business
Instead of souring on the deal and going back to the drawing board, you can renegotiate the terms. An experienced lawyer can likely detect doubtful conditions and fishy inquirers, and they can also take advantage of opportunities where you can haggle your position.
If possible, opt for a larger down payment and fewer installments to prevent loss from inflation and interest.
Also check various sellers’ earn-out payment options to give you and the buyer a win-win outcome.
An earn-out is a contingency payment agreed upon sale so buyers can wait for a growth target to materialize before paying full price.
Step 5: Closing the deal
You’re at the finish line and can smell the sweet, sweet scent of victory in the form of a fat cheque.
But before the buyer hands that cheque over, you’ve gotta finalize the deal.
This last step is crucial. Be cautious as complications may still arise even on the very last day of negotiation.
Now that you’ve arranged an agreement of your terms with the buyer, here are a few final steps to ensure a successful sale:
- Have the lawyer review the final documents. Another pair of sharp eyes will ensure you don’t miss out on any important activities and paperwork.
- Ensure the payment method is secure before finalizing the purchase agreement. Once the purchase offer has been signed, creating changes will definitely be a hassle.
- Consider the state laws that cover the transaction to avoid any penalties. Government policies vary in different localities, so check what’s applicable to your state.
When the cash is already handed over, bear in mind that you’ll need to stick around for the transition period.
Ensure a smooth transition to wrap up the acquisition process.
After sealing the deal, a checklist is a must. Checklists help you remain cool, calm, and collected during the agreement. You don’t want to be stuck with headaches from improper transition practices. You want to be enjoying your big payday.
So, here are some tips for maintaining business continuity:
- Stick around for the next month or two to assist in the daily operations and dedicate time to transferring ownership
- Schedule training even before the final closing to let the new owner know you’re dedicated to providing a smooth transition plan after sealing the deal
- Be sure to hand over passwords, security codes, client and service provider lists, customer email, and purchase records
- Conduct a formal introduction of new management to your employees who will be around after the sale process
When you have it all planned and take control of the transition process, potential buyers become more optimistic and certain in their ability to oversee and supervise their new (to them) company.
Takeaways and Action Steps
Selling a digital agency requires more than just marketing and negotiating skills. You also need to get your internal processes and systems in order, which demands time and diligence.
Seeking expertise from professionals can also contribute to proper turnover during and after the agreement with the right buyer is made.
Here are key takeaway points to help in ensuring a hassle-free sale:
- Identify and weigh your agency’s top selling points so you can fully benefit from a good deal.
- Take time to prepare for your intention to sell. It may take months to a year to keep everything systematized and ready for transfer.
- Know the actual value of your agency based on computed facts so potential buyers know with certainty that your agency is worth every penny.
- Confidently negotiate your terms and be ready to wait in the wings for support during the transition period.
Let ScaleTime help you in analyzing your agency’s potential.
First, take our Scale Map Diagnostic Assessment to help you pinpoint organizational gaps and strengths. Then, optimize your existing processes and workflows and be ready to sell your agency successfully.