How to make your agency more valuable?
Agency owners often ask me how they can make their agency more valuable. This is indeed a valuable question in itself. Whether you’re thinking of selling your agency now, in 6 months time or many years in the future, a focus on what drives value in your firm is a game changer. It can not only bring greater rewards upon an exit, but also make you more successful in the short term. Here’s my Top 12 tips for making your agency more valuable and more attractive to potential buyers (in now particular order, except perhaps for the first one!)
When it comes to agency valuations, size matters. An agency’s value is usually in its ability to generate cash. The more profit you make, the bigger the valuation you’re going to achieve. If you want to be an acquisition target and realise some serious exit money, you really need some critical mass. Aim for > £500k EBITDA.
2. Track Record
More valuable agencies are more consistent agencies. Firms that can show consistent year on year growth. Nobody wants to buy a rollercoaster. A track record of growth will attract better buyers and bigger valuations.
3. Recurring Revenue
Where your profit comes from is as important as how profitable you are. Acquirers prefer to see regular monthly income in the form of fees and retainers rather than project work that, although profitable, is also highly volatile.
4. Management Information
A well run business with good management accounts gives buyers comfort. Due diligence will still be undertaken, but the risk of the purchaser uncovering nasty surprises or issues is reduced. The lower the risk, the greater the value.
5. Balanced Portfolio
A dominant client is a huge turnoff for most buyers and often reduces the value of an agency. Unless they have a strategic reason for wanting to acquire the client, most buyers will be concerned by a single client which is > 20% of revenue.
As the value of an agency is in its ability to generate income, the security of that income is paramount. Contracts provide security. Client income built purely on personal relationships increases risk and reduces the value of an agency.
7. Leadership Team
If you want to achieve a high valuation and exit your agency, you need to put yourself out of a job BEFORE you sell. An agency that’s reliant on its founder is far less valuable than one that has a strong leadership in place running the business. A team that could buy the agency themselves or be easily integrated with a large.
Your ability to win new business makes your agency more valuable. If an acquirer can not only see a good pipeline of current opportunities, but also an established and effective sales and marketing function that generates leads, then they will pay more for your business.
An agency’s reputation and profile can not only help it to win new business it can also attract talent. Your brand, like any brand, has a value. Awards and industry recognition are not particularly valuable in isolation, but they can enhance your brand and credibility as a service provider and an employer.
Most agencies have few physical assets, but bespoke tech, software and intellectual property can all contribute significantly to creating a more attractive acquisition and a more valuable agency.
The most valuable operational asset of any agency is its people. Unfortunately, whilst they might be under contract, they’re free to leave whenever they want. Nevertheless, the better people you employ, the more attractive your agency will be for an acquirer. You should also consider your people structure. An agency with full time employees is likely to be more valuable than one that operates almost entirely with freelancers.
When comes to business value, financial performance is paramount. However, society is placing an increasing importance on ethical trading and how we put purpose ahead of profit. Larger acquirers offering larger valuations will increasingly consider how your approach to CSR will fit in with their business. The better the fit, the higher the value.