Recently, we welcomed over 30 UK independent agency owners and founders to discuss strategies to balance growth, purpose, and exit value. It was a reflective and energetic event, and we've since received numerous questions regarding the event's theme.
This is understandable. According to recent research, only ten out of every 100 businesses seeking a buyer manage to successfully sell and maximise their value. Worse, an abortive sale process could cost up to £100,000, not to mention the hidden costs of a distracted management team.
However, hundreds of companies change hands every year. While we’d be cautious about the claimed multiples, many of these businesses do realise their true value.
So, how can you seize this once-in-a-lifetime opportunity and avoid the pitfalls that hinder 90% of business sales? And why should you consider the vital importance of purposeful growth to attract potential acquirers?
Put yourself in the buyer’s shoes!
As we advise new and existing clients, you need to maximise the value of your business by thinking about it from a buyer’s perspective. Buyers, both traditional and new, want an investment that minimises their risk while maximising their returns. They now also recognise that balancing profit with purpose can significantly increase an agency’s value, both short and long term.
For creative and marketing agencies, buyers typically manage risk through this simple formula:
V = P x M,
where Value = Profit x Multiple
Here, “P” represents the company’s historical financial performance, while “M” is its future earning potential and associated risk.
From the buyer’s perspective, it’s a way to manage risk. For the business owner, the formula represents the culmination of your hard work and dedication. It reflects all those late nights, the risks you’ve taken, the sacrifices you’ve made, and, importantly, the expectations of what the business would deliver to you, your family, and stakeholders in the form of future financial security.
To prepare a business for sale, you need to focus on factors that will drive the multiple of the business, as this enhances value more than factors focusing solely on increasing performance and profits. You need to see it in purely financial and commercial terms, not as the product of years of hard work, blood, sweat, and tears.
You must take the emotion out of it.
A Dream with a Plan
So, how do you build a strategy with purpose? We work closely with our clients to develop their own personal ‘Dream with a Plan’; a plan that, over 18 months, transforms the business, creating exceptional opportunities to grow the team and clients, and, importantly, meet the end goal. We do this by focusing on five key areas that maximise the value of a business:
Selling the Story, Not the Business Show a buyer why you’re in business, what your business achieves, and what it stands for. This demonstrates a vision and continued purpose for the business’s future. It also enables you and a prospective buyer to assess whether there’s a cultural fit, which could be critical if the deal involves an earn-out period. Include a clear reason for selling. Buyers are familiar with the standard line, "the business would now benefit from being part of a larger entity to capitalise on identified and significant growth opportunities," so it pays to be upfront.
A History of Investing in Growth Underinvesting to maximise profits doesn’t work. Serious buyers will see through it. They’re more interested in future profits than current accounts. Concentrate on areas that will increase future revenue, improve margins, and fix single points of failure in the business. Scalability is crucial, so implement effective systems and processes.
Reducing Single Points of Failure Over-dependence on anything represents a risk. No client should represent more than 20% of your profit. Change of control clauses in client contracts could cause major legal issues. Assemble great talent, including your replacement. A risk-conscious buyer will want to see a strong team in it for the long term. Incentivise the team around unity of purpose alongside share options and bonuses. Use financial data to make informed decisions about the business’s future that will stand up to due diligence.
Improving Revenue Confidence Historical and current performance are important, but a buyer is acquiring your forward revenue streams. Demonstrate revenue confidence by having a stable, recurring revenue portion. Avoid dependency on day rates by productising services to be sold on value, not time. Develop multiple revenue streams to reduce risk. Invest in new business and organic growth, and ensure your team understands that improving revenue confidence is part of their job description. Buyers will pay a premium for businesses with predictable future earnings.
Sell on Your Own Terms Nothing destroys value more than desperation. Not being in a rush is a powerful message to potential buyers about your confidence in your business.
Remember!
Selling your business is not a strategy; it’s an option created by having a well-developed and executed business plan—your dream with a plan. By viewing your business as an asset to be carefully crafted, you can maximise its value.
As we say, incredible things happen when you focus on growth with purpose. If you are looking to grow your business to maximise its value, contact us on 07879 845845, 020 8133 1845, or drop us an email dan@actus.consulting.