That’s how much Michael Arrington and Keith Teare got when they sold TechCrunch to America Online (AOL) in 2010.
Not too shabby, right?
Are you mulling over the idea of selling your digital marketing agency? You might not get that much, but there will be bumper rewards for all your hard work over the years. As long as you follow a proven process, you will come out on top and emerge with a fat bank account.
Selling a digital agency can be very profitable like selling a website.
In this article, I will show you step-by-step how to sell a digital marketing agency.
Why Sell Your Agency?
Selling a profitable business isn’t a simple decision.
Why would you want to do it?
There are many reasons for opting to sell a digital marketing agency, among them:
Companies can sell for mouth-watering sums. We are talking about hundreds or millions of dollars. The alluring temptation of a financial windfall that can finance your dream lifestyle and secure your future can be too strong to resist.
Sometimes, you want to take a new direction, hence the need to sell. Perhaps you now find the daily grind of your current business an unchallenging drudgery. You are hungry for another adventure that’ll stretch your abilities.
When you’ve been pushing too hard for too long, the moment comes when you want to rest from the daily rigors of running a thriving business.
Sometimes you realize you hit the growth ceiling. You can’t take the business any further than you have, despite your best efforts. Perhaps the new owners with new ideas and more resources can take the enterprise to the next level.
Whatever your reason, you are now ready to sell. Let’s now look at the steps you should take to find a buyer and close the sale fast.
#1. Determine The Value Of Your Agency
The first step to selling your digital marketing agency is to assess its value.
Knowing the true value of your agency helps you not to:
1 Undersell yourself
If you charge less than the actual market value, you will leave gobs of cash on the table.
Imagine the sting of pain and regret you will feel when you discover a few months down the road that your former business is worth 2x more than what you got for it.
2 Overcharge buyers
In a bid to maximize earnings from your sale, you can end up asking more than the market can bear. Nothing scares off potential buyers faster than overpricing. Often, they don’t even try to negotiate because they know the price would still be beyond them even if you reduce it.
Most buyers kick off discussions by asking how much money the business is making and its future income potential. Talk revolves around EBITDA, an acronym for ‘earnings before interest, taxes, depreciation, and amortization.’ This is a measure of how much money remains after regular business expenses such as office rent, vendor payments, and salaries.
Most digital agencies sell for 4-6X EBITDA, so that’s what you must gun for.
#2. Identify All Your Key Bargaining Chips
To push for the maximum price on the negotiation table, you must identify the aces in your pack. These are special attributes that can boost the value of your company in the buyer’s eyes.
Besides anchoring your valuation on EBITDA, other factors you can use to ask for a higher price are:
Niche-specific service agencies fetch higher prices than generalist ones. So a PPC agency is worth more than one that offers a variety of services. Not only do specialized agencies earn more, but they also have fewer competitors.
Buyers rate agencies that have stood the test of time as more stable and valuable than those that haven’t been around for long. So if your company has been operating for many years, that’s something you can use to ask for more.
The make-up of your client list contributes to your digital marketing agency’s worth. High-value agencies don’t depend on one client for over 30% of their income otherwise the business struggles when they leave. Therefore, if you have a balanced clientele, your agency is stable.
You can talk about the potential earnings all you want, but investors want to see the money you are making now. The more recurring, fat contracts you have in your sales management system, the more you can rake in. One-off customers, no matter how many, aren’t as lucrative as recurring clients.
Do you have a good name in the marketplace? Brands with a solid reputation can attract better customers and open up gigantic doors for future owners.
#3. Document Your Processes And Systems
Source: Business Made Simple
If you haven’t done so already, it’s important to document your processes.
Prospective buyers want to know exactly how your sleek, money-spitting machine fires. Without documented systems, you could disappear into the sunset with your fat cheque and leave the new owners stranded.
Buyers love agencies that have streamlined and automated systems that drive all operations because systems lead to:
- Continuity: unlike personality-dependent operations that grind to a halt when a vital team member leaves or is absent, systems-driven organizations move right on-new workers can plug in seamlessly.
- Consistency: systemized processes empower teams to deliver a consistent customer experience that results in customer satisfaction and loyalty.
- Efficiency: a settled and proven way of doing things eliminates wasted effort and improves employee productivity levels.
- Scalability: a methodized operation allows you to shift your focus to serving your customers and creating new products for faster growth.
- Affordability: organized agencies minimize duplication of roles and lower labor costs as integrated technology solutions handle mundane tasks.
Below are two key systems to document:
1 Lead Generation System
Without a steady flow of leads at the top of the sales funnel, a digital agency dies a slow, painful death. In the early years, it’s normal for you to be at the forefront of your agency’s lead generation efforts. But as your agency matures, wean yourself off and make the entire process systems driven. Also, your system must have a good mix of organic and paid lead gen methods.
2 Technology Stack System
In an age where marketing and sales setups have myriad moving pieces, technology stacks have come to the fore. Record how you weave your email, CRM, paid advertising, social media management, video platforms, marketing automation, and search analytics tools. Your documentation should show where the hub of the system lies and how everything connects.
#4. Decide Your Marketing Strategy
Selling your business isn’t as easy as it sounds. Many agencies go unsold because the owners’ marketing strategies weren’t up to scratch.
There are two ways to go about it.
Either you sell it yourself or hire a business broker. Each method has its pros and cons.
1 Selling Via A Broker
For a hands-off approach, hire a business broker to do the heavy lifting for you. Look for an experienced broker who knows your niche and has a wide network to tap from.
- High earnings potential as the broker will push the price up to boost their commission.
- Close the deal faster since brokers are specialists who know how to close deals fast.
- Convenient for you since your broker does all the running.
- Saves time and a mountain of paperwork you could have done drafting and tweaking financial and taxation documents.
- High service fees eat into your earnings.
- Hard to find superb and affordable brokers who know their game.
2 Selling Solo
If you have the guts, patience, and tact you can sell your agency on your own. All it takes is to get the word out on your network that you are selling your business.
- Save thousands of dollars in broker payments, typically 8% to 10% of the selling price.
- Get 100% proceeds of the sale.
- You sharpen your negotiation skills, which can stand you in good stead in future business endeavors.
- High chance of charging lower than the market rate if you don’t do your homework properly.
Once you’ve decided whether to sell your agency yourself or hire a smart marketer, move onto the next step.
#5. Sort Out Your Financials
One of the first things potential buyers want to see is your company’s financial figures. They want to know how much is coming and how much is going out every month.
So put your financial paperwork in order.
They should include:
- Profit and Loss Statements for 3 years or so for investors to see the company’s growth pattern.
- Key performance indicators (KPIs) like customer acquisition cost (CAC), gross margins, net margins, close rate, churn rate, and customer lifetime value or CLV.
- List of accounts payable and accounts receivable.
- Project summary highlighting all current projects in your sales pipeline and their value.
- Accounts receivable turnover, which measures how long it takes to collect money from your customers
- Quick debt ratio, which is the number that gauges your present assets (minus the inventory) divided by current liabilities.
- Free cash flow or the amount of cash you have in the bank right now after covering all your expenses. A lot of disposable cash shows the sustainability of your business.
- Offer to purchase agreement that spells out the terms and conditions between you and the buyer.
Then you cap it all up with a watertight non-disclosure agreement.
#6. Prepare To Answer Crucial Buyer Questions
Buyers ask tonnes of questions and rightly so.
You wouldn’t part with hundreds of millions of dollars without getting assurances about your concerns, would you? Be smart. Prepare answers to the typical questions buyers ask.
Here are the top 5 questions that might come up in discussions
1 How did you arrive at your asking price?
Buyers want you to show you didn’t guesstimate your price. Be ready to show the process and calculations you used to reach your final asking price. If buyers feel you based your price on whimsical factors, they have room to push the asking price down.
2 What will employees do after the sale?
Do your employees, especially those who hold key positions, know about the upcoming sale? If yes, will they leave or stay after the completion of the sale? Assure the buyer those who are on their way won’t take trade secrets with them because they will sign non-compete and non-disclosure agreements.
3 What are your biggest challenges right now?
No one wants to walk blindly into a danger zone. Be honest about the potential threats to the business. Include workable solutions to the challenges so they don’t sound too threatening and end up looking like opportunities. Better still, preempt the potential threats before the buyer raises them.
4 Which skills do I need to run this business effectively?
Seeing a business make money is one thing, but being at the helm daily is a rude awakening for many budding owners. Tell the future owner must-have leadership skills they need to steer the ship to prosperity.
5 Are your business procedures documented?
Nothing helps an incoming company owner get up to speed with business operations faster than documented procedures. Make sure you have standard operating procedure (SOP) documents, manuals, and policy documents for your entire operation.
#7. Hire A Business Attorney To Scrutinize The Documents
To push your deal through you need to ensure your documents are in place and you’ve crossed all the t’s and dotted all the i’s, you must rope in a business lawyer.
The paperwork involved when selling a business can be overwhelming.
Here are 7 important documents you need to facilitate the sale.
- Non-Disclosure Confidentiality Agreement to protect all sensitive information.
- Letter Of Intent that lists all the terms and conditions of the proposed sale.
- Buyer’s Due Diligence stating that the buyers shall investigate the business.
- Purchase Agreement to lock the buyer to the agreed terms and conditions.
- Buyer’s Method Of Payment detailing how the buyer intends to pay.
- Local State Laws vary from state to state, so make sure you stay on their right side.
- Personal Financial Statement for the buyer to complete.
A good attorney will help you compile all the documents you need for a successful sale. Besides, they’ll guide you on what to double-check before you put your signature. Good lawyers have a trained sharp eye and know all the legal hoops to go through to complete the sale.
First, look for an experienced attorney.
You need someone who has been around the block a few times and has facilitated several deals similar to yours. They know how to sidestep potential legal landmines. Their expertise will also speed up the process and close the deal sooner than you would have on your own.
Not only do brilliant lawyers alert you to threats that may derail the deal, but they also help you spot opportunities you can exploit.
#8. Be Wary Of Partial Share Purchases And Long-term Payouts
You are selling because you want money now, right?
Buyers want favorable payment terms.
- A rock-bottom initial lump sum payment.
- A lengthy period to pay off the rest of the money.
- Payment in shares to reduce cash commitments.
First, a small down payment might not be enough for you to do what you set out to achieve through the proceeds of the sale. Second, getting payments spread over 24 installments may eat up your money should inflation rise significantly.
Getting part of your payments as shares is risky.
How sure are you that the successor will do a superb job and skyrocket the company’s income after you’ve left? What if earnings nosedive instead? Then you’ve thrown your shares down the drain.
To stay clear of all these complications, insist on a large down payment and fewer instalments. Or, if you get a slightly lower cash bid, take that instead and ride into the sunset and enjoy your money without the delay of staggered payments.
#9. Prepare Adequately For The Handover Period
After the money has exchanged hands, that’s not the end.
There’s one more thing to handle.
Before the new owner takes full control of the company, you must help them through the transition period.
If they see you have planned for the changeover period, they are more likely to bite. Here is a checklist for a smooth glitch-free transition.
- Agree on how long the handover time will be
- Set a familiarization tour date for the new owner to get an overview of the business
- Dedicate sufficient time for training so the new owners get clued up about operations
- Have all access codes/passwords for website hosts, blogs, and other web properties ready for the new owner
- Turn over all the keys (and alarm codes) to buildings, vehicles, and file cabinets
- Hand over the client list complete with a brief background of each
Having a mapped-out handover strategy inspires confidence. The prospective buyer can see you have them covered and want to make things comfortable for them during the handover process.
How To Sell A Digital Marketing Agency: Not An Exact Science
Selling a marketing agency isn’t as daunting as it seems if you follow a tried-and-tested process.
It all boils down to:
- Meticulous planning of the sale well before it happens.
- Identification and promotion of your agency’s strengths.
- Systemization of all pivotal aspects of your marketing agency.
- Sharp negotiation skills so you get the best deal.
Use these tips to promote your agency like a pro, sell it for a princely sum, and move on to the next challenge in your life.