Selling a business tends to follow the same general pattern regardless of what type of business it is you’re trying to sell. However, some things vary dramatically for certain types of businesses.
One of those, which has become a core part of most industries in the modern world, is a marketing agency.
As a marketing agency, you provide a necessary service that most companies wouldn’t be able to thrive without in an increasingly online-powered market.
However, when considering how to sell a marketing agency, you must recognize that you’re not exactly a physical business with concrete assets and profit histories. Your business comes purely from providing service and results.
That plays a big part in the strategy you want to use to sell your marketing agency, and if you do it wrong, you’ll likely get a bad deal or have a long road ahead of you.
To help with that, we’re going to highlight each step you need to take to sell your marketing agency effectively.
Let’s get started.
1: Defining When and Why You Want to Sell Your Business
Identifying why you’re looking to sell your company is crucial. The “why” will significantly influence the “how” in this scenario. For instance, are you divesting because the market has peaked, and extracting value now is prudent, or is it a step towards a relaxed retirement?
Either of those and the various other reasons behind looking to sell will require you to take a different approach. So, spend some time figuring out why you want to start posturing for a sale of the business.
However, you also need to look at when you’re looking to sell. This can tie into your reasons for selling, too.
If you’re just planning to sell when the business starts losing profits, you might be able to stay in business for years to come. It’s probably not an immediate goal, but you still want to start preparing with the other steps we talked about and look at market trends to determine when you’ll likely start having problems.
For other reasons, you’re probably looking at a more definable timeline, such as selling for retirement.
In that case, it’s important to look at when you’d like to have the sale completed, but also consider how much time the prep work will require. A deadline such as “3 months” isn’t even remotely practical, but giving yourself 10 years is a bit ahead of schedule.
A good timeframe for most situations is a year. That gives you time to get everything together, find a buyer, and complete the sale, but you’ll likely have thoughts of selling long before you come to that conclusion. So, to be safe, at least start organizing your records as soon as possible.
2: Have a Business Analysis Performed (Value Your Business)
You can’t sell your business if you don’t know how much it’s worth. So, that’s going to be your first real step toward selling it.
Traditionally, there are a few factors you’ll look at, value independently, and then add together for a ballpark number you can present to potential buyers.
Your marketing business’s unique traits make that process a little more complicated. So, rather than doing it yourself, which even a standard small business shouldn’t do, we recommend getting a professional service.
A professional business evaluator can look at your business from a variety of angles beyond just the hard data you have on paper, and they can give you a solid recommended selling price that will both appeal to good buyers and give you what your business is worth.
However, so you have a general idea of what’s looked at, here are the basics.
A: Profitability and History
First and foremost, the core of your business’s value comes from its financial history and current profitability. After all, a buyer wants a business that is going to earn them money.
They don’t want a business that is falling apart and about to go bankrupt, especially in the current economy.
Preferably, you want 4 to 7 years of profitable records. Obviously, there’s an ebb and flow to business, and you might have some quarters that didn’t perform well. That’s expected. You do want to have the best records possible, though.
This process is time-consuming, frustrating, and sometimes costly, depending on how well you’ve kept records throughout your time running the agency. When figuring out how to sell a marketing agency, understanding the importance of these records is crucial. If you put a lot of time and effort into organizing and maintaining accurate records from the start, it’s a lot easier.
An M&A advisor will help you by pinpointing which records you need, how you should have them organized, and of course, with any other pre-sale prep work that needs to be done.
B: Future Profitability
A buyer wants to know that there’s potential in the business they’re buying. The best way to show that is a projected increase in profits after they take over. This can vary depending on if your business is highly dependent on you being the owner or if anyone can step in and do the job right.
There are several factors that play into your future profitability, and again, it’s best to have an M&A advisor help with this determination.
As a marketing agency, you’re probably not sitting on a lot of physical assets. Manufacturers tend to have unique, expensive equipment, other services have fleets of vehicles, and other common assets for businesses are patents, trademarks, and other IP assets.
That doesn’t mean you don’t have any assets to consider, though. If your company name has developed a strong brand reputation, the IP can be considered an asset. Logos, names, and similar things that can be sold separately from the business as a whole or part of it can be considered assets.
3: Note Your Contracts and Business Model
Most of the value your business has comes from its contracts. Who is paying you to provide them with your services, and how much are they regularly paying?
Not only does your buyer need to know that to understand what they might be picking up if the client sticks around after the sale, but that’s also valuable. If a single client is contractually paying $50,000 per month, that’s $50,000 of recurring income every month. Assuming the agreement doesn’t fall apart.
You want to document each of your contracts to ensure you can present them as major assets to the buyer.
However, documenting how your business operates is also crucial. A lot of a marketing agency’s profitability comes down to how fast it can turn contracted work around and how many resources are used while doing so. A buyer wants to see a process that is reasonably fast, uses minimal resources, and is generally efficient.
That tells them they can come into a well-oiled machine and seamlessly pick up where you left off.
4: Start Boosting Profits, Now
Now, you’re getting close to selling the business, but if you want to maximize how much you get from the sale, you want to maximize profits. Engaging M&A advisors can provide invaluable insights in this phase.
Since a marketing agency is entirely based on getting paid to market other businesses, the best way to do this is to increase brand recognition, get new valuable contracts, and generally make more money with new customers.
You don’t drop the old ones. You just want to take on a higher workload without overwhelming yourself to the point that your quality starts to slip.
However, it doesn’t all come down to making more money directly off your customers. It can also mean cutting back on wasteful things.
Are you paying for a brick-and-mortar facility to work from, but everyone kept working remotely after the pandemic? You’re paying rent on an unused building.
What about the loans you took out to get started or to get over a rough patch? Those look bad when you go to sell, and they can be used as negotiation points to lower your price.
Take care of your debts and pointless expenses.
Not only will that make your business look more profitable, but it will also free up funds to work with while you’re increasing your own brand recognition. As you know better than anyone else, marketing and increasing customer conversion costs money.
5: Decide How You Want to Sell the Business
How you sell the business is just as important as when and for how much. Especially when contemplating how to sell a marketing agency, the method used can significantly impact the transaction’s duration and cost, especially during the post-sale process when it’s time to settle with Uncle Sam.
Nevertheless, navigating the complex world of selling a business can be daunting, and this is where M&A experts can play a pivotal role.
You can do this in multiple ways.
First, there’s a seller’s note. This is usually used to sell it to someone you know who is interested in taking over but they don’t have the funds to do so. It allows them to pay in an agreed-upon way rather than seeking investment funds for one big payment like other buyers would.
However, a seller’s note generally won’t be used for a marketing agency. That’s a more common approach for small, brick-and-mortar shops that stay in the family.
There’s also a stock sale. This is when you sell all of your stock in the company to the buyer. In recent news, you’ve seen this when Elon Musk purchased Twitter. He simply bought all the stocks for the company.
If you’re publicly traded, that’s a great option. However, most middle-market companies aren’t publicly traded.
Finally, there’s the old-fashioned way of simply having a “cash” transaction, signing everything over, and moving on with your life. This is usually the desirable method in this sphere of industry.
You can do the last one by separating assets and selling everything piecemeal, or you can sell it as one lump package. How you do it affects your tax liability.
6: Hire a Business Advisor
A business advisor is crucial for selling any business, but when it comes to something that isn’t physical, such as a marketing agency, a broker, or an M&A advisor is an absolute must. Trying to sell your marketing agency without one is a recipe for disaster.
They will help with negotiations, finding buyers, and, overall, making your business look like a good buy while handling the transaction. They’re one of the few middlemen who aren’t optional.
Going into a sale agreement without an M&A advisor can lead to you getting bullied in the negotiation room, chasing off good buyers with poor negotiation skills, missing key details, or setting yourself up for massive tax liabilities. They will also help prevent those issues, but you still want someone heading into the negotiation room for you and facilitating the sale itself.
7: Find Buyers
Another crucial role M&A advisors have is engaging you with their contacts and helping you by pointing out the right channels you should leverage, but during this phase, you’ll be looking for buyers and vetting them as they come in.
Not every buyer is worth your time. Some will waste your time starting a deal just to find out they can’t secure funding, some will need months to secure funding for the deal, and others will be wildly unrealistic.
You want to find buyers and ask them three questions before you even bother talking about details.
You want to find out if they have the funds or not, how experienced they are in buying a business, and when they can commit to the deal.
The last two are fairly flexible. A buyer doesn’t need to have purchased a business before, and if you can wait a month, then it’s okay that they can’t get the money for that long. However, you should always know how they plan to fund it. Not having funding available, or at least on the way, is why most deals fall apart.
Call Final Ascent, Today
Throughout our guide on how to sell a marketing agency, you’ve probably noticed that we told you to hire a professional for various tasks.
While accountants and dedicated brokers are still useful, they provide targeted services at specific points. You need a service that sticks with you through it all.
At Final Ascent, we solve that. We’re M&A advisors who start our job at the beginning of the process, and we don’t stop until it’s completed. Not only do we guide you through every step we listed, but we also help with post-sale preparations and transitions to ensure you move on smoothly.
Contact us today.