How to Sell your Agency: Tips From Former Agency Owners
Key points
- Agency owners should build a sellable company from the beginning even if they don’t intend on selling it soon.
- It might be time to sell your agency if you’re no longer invested in it, or are limiting its growth.
- Before selling it, make sure your agency is seen in a good light, all your processes are documented, and you have recurring revenue.
When most people start an agency, they don’t think about selling it—at least not for a few more years. And when the time comes, then what? How do you begin the process, and is the decision even the right one?
In a letter to shareholders, Amazon CEO Jeff Bezos said that “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.”
And we’re not talking about tiny, insignificant decisions here. Not at all. Sometimes even the make-or-break decisions need to be made quickly and firmly.
Below you’ll find what you should know about making important decisions such as selling your agency. Then we’ll go in-depth about the steps on how to sell your agency for the highest price possible.
Why you should build a sellable agency
Is it wrong to start an agency that you want to sell at some point? The answer is a clear no.
In his book Built to Sell, John Warillow admits:
“The best businesses are sellable, and smart business people believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon.”
Which means you should always be prepared if the opportunity comes.
John goes deeper and talks about the requirements you must meet to have a sellable business at the highest possible price. Here are the ones that apply more directly to an agency like yours:
“Don’t become synonymous with your company. If buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.”
“Create a scalable product or service that is teachable, valuable and repeatable.” That means easy to teach, not a commodity and little to no customization.
“Don’t generalize; specialize. Focus on doing one thing well and hire specialists in that area, the quality of your work will improve, and you will stand out.“
“Make sure that no one client makes up more than 15 percent of your revenue. Relying too heavily on one client is risky and will turn off potential buyers. “
“Avoid the cash suck. Once you’ve standardized your service, charge up front or use progress billing to create a positive cash flow cycle.”
As you can see, any business can benefit from these practices.
Even if you’re far away from selling your business, you should set these systems in motion so that you’re ready to step out.
One of the single biggest failures I have made since launching Scribly is having an operational setup that made it almost impossible for anyone else to get involved. Initially, that wasn’t an issue as I was running everything myself. But as soon as Scribly began to scale, it caused huge issues.
Now, if cashing out is something you’re evaluating closely, keep reading.
3 hints that it’s time to sell your agency
You always have the option to keep pushing hard and the option of letting someone else acquire you, pour in more resources and accelerate growth. So, when you find yourself in a situation where you need to choose between the two, how do you know which one to choose?
1. You’re no longer giving it 100%
As cheesy as it sounds, being self-aware and knowing when things aren’t at the core of your inner drive is crucial for an entrepreneur.
Not to say that you won’t evaluate the decision with numbers and logic, but look, as life changes sometimes you need to stop doing things that are draining your energy and sanity.
This is how Tommy Joiner felt when he was still running Content Pros with his partner, as he mentions in this podcast.
So, by the time I was ready to exit the business, I had navigated the entire entrepreneurial journey and it felt like I was already at the climax and was just ready for something else. It felt like I had achieved the goal of building the asset to the level that I wanted to, and I guess the other thing is—I didn't have the motivation to grow it.
If you start to dread running your business, there’s something that needs to be fixed. And letting someone else run the show might be your best bet.
2. You’re limiting your agency’s growth
Entrepreneurs have great ambitions. Some break the 6-figure mark, then 7, and there’s always room for more.
It could be that your agency—and the way you set it up—is not enough to give you the financial rewards you desire.
It could be that your differentiation has vanished over the years, and you’d need some drastic changes to keep things growing, or otherwise you’ll have to compete for price. Both things that you might not be into.
It could also be that your team has grown so much that you simply don’t know how to manage them, as Kenny Schumacher mentioned in his interview with us.
It got to a point where I wasn’t sure I was adding so much value myself to the business. It was still growing, but nothing super crazy. My success so far has been growing smaller businesses.
That being said, an agency is a great vehicle for entrepreneurs. However, you might want to try your luck with another business model—say, an e-commerce brand, a tech business, or an audience-building/media company—that’s fine, too.
If you feel your growth is capped and other ventures would have a higher probability of getting you where you want to go, then selling is not out of the question.
3. You let your emotions take control
When you spend so many years working in your business, it’s easy to get emotionally attached to it. Even if you think you’re not emotionally attached at all, believe me, chances are you are.
As you start to evaluate options, you need to make a conscious effort to see things as they are.
Get out of your head and start thinking objectively whether this will be the best for you and your wellbeing into the future. A lot of people keep doing it just for the money—or the ego of all the years they’ve put into it. You don’t want that.
Grow your industry knowledge
It’s important that you make a decision—one that doesn’t necessarily need to be written in stone but has a certain degree of flexibility. Then start looking for gaps in your systems to maximize your business valuation and make sure you meet all necessary requirements.
You don’t need to sell tomorrow. Just make the decision that you’re going to. Because the best entrepreneurs know when it’s time to step out and are decisive about it.
Those who cling to it for too long and have that nagging doubt buzzing on their heads all the time are the ones who suffer the most.
Sell your digital agency in 6 steps
You’ve made the decision to sell your agency: congratulations! Now comes the hard part, actually going through with it. The bad news is that service businesses are not easy to sell, but modern processes have made things a bit easier.
For one, if your agency is productized, you should have processes in place that are documented, (partially) automated, and trackable. This makes it easier to put a number on your business and find the right buyer for it.
But what is a fair asking price, and what is the due diligence process? Let’s answer these questions step-by-step in detail.
1. Ensure your business is sellable
This goes back to the beginning of this post, building an agency that is sellable (even if you’re not thinking about the selling process). One of the most important things to keep in mind is that a business that couldn’t run without you is not sellable. But also think about your employees and contractors: would they even stick around if you sell?
I wanted the employees and the contractors to go with the business and to be taken care of. That definitely was important to me because those people became like my family, and then, the others where there was a good fit as well were the ones that had very similar business models.
Talk about your idea of selling the business, and let them know that you’ll do everything in your power to find the right buyer that values them. In certain circumstances, adding a bonus for staying might be the right incentive to ensure a smooth sales process, and you’ll also add value for the buyer.
2. Work on your image
If you’re running an agency like any other, it’s going to be hard to sell it. Buyers want to acquire something that is already unique, but have potential to become even greater. One way to achieve that might be by offering higher priced services.
I’ve now made the decision to raise the Blogging Unlimited package by 35% to $2,700/m and the Everything Unlimited package by almost 43% up to $5,000/m. These price rises have been the result of much introspection about the value of what Scribly offers. Ultimately, I’ve come to realize that if I don’t place a value on the (exceptional) work that we produce, then no-one else will.
Price isn’t the only differentiator when it comes to business development. You could also focus on a specific niche, or sub category in your niche. For instance, in our interview with Johnathan Solorzano, he mentioned how he decided to focus on Shopify and WooCommerce.
Focusing on a specific group of clients will make it easier for the acquirer. They’ll know exactly who to target if they decide to spend their budget on marketing.
3. Document your processes and systems
Having a great team and clear client list in place is great, but often not enough. The buyer of an agency is not interested in setting up processes to make it run smoothly. They want those to be already set up and documented.
I decided that, instead of calling my employees and telling them over the phone exactly what I wanted them to do, I would start by writing down every single thing that had to be done, making that as concise as possible. That ended up procedures and processes in place.
The sooner you document your processes, the easier it will be for you in the future. Make use of modern tools such as a client portal, link it up with a CRM and email marketing tool.
4. Secure recurring revenue for 12 months
When it comes so finding out what an agency is worth, many owners focus solely on their profit margin. While that is important, buyers are very interested in recurring revenue.
[…] your last 12 months of revenue history are what’s most important, and it’s basically just a simple calculation of multiplying EBITDA for a 12-month period by whatever the multiple is.
Tommy also learned from his broker that major factors when it comes to finding the value of an agency growth, transferability, risk, and documentation. If you don’t have a lot of lead generation activities, that will impact your growth potential. On the other hand, having a solid client list of recurring subscribers (especially annual) is a major benefit. You can also look at your general churn rate and customer lifetime value.
5. Get a business broker
It’s not an easy task to find a potential buyer. Where should you even start looking? Should you reach out to your partners or post on social media?
Let’s be honest, a prospective buyer doesn’t have time to search for deals on social networks. Some of them are certainly very proactive, and might come across you organically, and make an offer to buy your business. But if your brand isn’t big enough, chances are that you’re simply not visible enough.
This is where a business broker comes in: they act as an intermediery for those who’ve decided to sell their business. In return for their services, business owners usually pay them a percentage of the sale price (commission).
6. Do your due diligence checks
You’ve done everything you can to make your agency sellable and the first offers are trickling in. At this point, you might think you’ve done your job, and just need to accept the highest offer.
Due diligence can be a massive bottleneck in the sales process. Make sure you get your numbers dialed in many months before you start shopping your agency for sale. You should be able to quickly and efficiently show all inflows and outflows of cash in one easy to follow spreadsheet.
Not so fast, there’s still some work left to do—and it involves a lot of patience. The next six to twelve months will be spent together with your business broker on finalizing the deal. There’ll be a lot of back-and-forth, and you’ll think it’ll never end.
The hardest about it all: you need to run your business on the side. After all, you haven’t sold it yet.
When it comes to accepting offers, here are three things you should keep in mind:
If the buyer is willing to pay a specific amount for your business, that doesn’t mean it’ll be all upfront. They might offer to pay in installments. If the period is any longer than twelve months, it becomes too much of a risk.
Only open up your financials to someone who’s not only interested in your business, but can actually pay for it. It’s a risky thing to hand over so much data to a third party.
Not every buyer might be the right one for your company. After all, you want to ensure that it continues to thrive and your team remains happy.
Are you ready to sell?
Revive the feeling of your first sale. It probably felt great. Selling a business could be that same experience amplified a 1,000 times.
Remember that there are different paths to your end goals, so if you already examined the pros and cons it’s time to make a choice.
Take your time to think about the possibility and don’t prolong it forever.
Be decisive; be self-aware; put a deadline on it if necessary. As Jeff Bezos said, “If you wait for 90% of the information, you’re probably being too slow.”