25 Simple Ways to Maximize the Value of your Digital Agency Exit (in Plain English)
Updated: Jan 8
1. Start planning early to make sure your business is sellable
There’s no formula as to when you should start planning an exit strategy. But the sooner you start, the better the odds are that you will be able to not only command maximum value for your business but be able to defend and justify your list price one hundred times over
From day one you should build your business with the intention of selling it. Consciously maximizing its value by building within it the qualities which will allow it to be sold at any moment, for the highest possible price a buyer is willing to pay for a business like yours.
One of the biggest mistakes business owners make is that they don’t plan their exit - they don’t think about selling their business until they have to
And in most cases - when you find yourself in a position where you HAVE to sell your business.. It’s typically not the best time to sell your business.
It’s important to start your business with the right mindset. Consider buying a house, for example. A homeowner who plans to flip the property is going to treat the house much differently than someone who wants to live there for the next 20 years.
2. Implement strong (tried and true) systems & processes - and automations where you can
Document and streamline all Standard Operating Procedures
Create a repeatable formula
Strong leadership team in place - incentivized to outperform and remain with company long term (Great leverage once you look to transition out of the company)
Systems and processes mean success is business-owned and won’t leave the business when the owner transitions out of it. Success that is tied up in specific relationships, or people, is not transferable – and not repeatable. Think of it this way: can a new owner, with the same skills as the current one, continue to scale your agency?
If you’re integral to the day-to-day operation of a business, you can't step out if you ever want to
create a sustainable business that can exist without you.
3. Get your books in order and be ready to defend them
When selling your business, no matter what type of acquirer, the conversation will progress to them asking to review your most recent 2-3 years of financial history (P&L + Balance Sheet) plus some sort of TTM ( Trailing 12 month) P&L.
Include your accountant in internal financial discussions and have them create audited year end financial reports for the company.
4. Leave your emotions out of it
Remember no two acquirers are alike - some will see it and some quite frankly just won't.. and you have to be okay with that
5. Illustrate a clear and exciting post acquisition vision
Your vision for maximum growth 2-3 years post acquisition
Any acquirer will want to make sure that they are buying a business with a strong and well thought out future.. At the very minimum a 2-3 years forward looking will give them (Team, clients, revenue projections)
If there’s no clear future then theres no company worth buying
6. Illustrate a well thought out post acquisition succession plan for the acquirer
An acquirer won’t want to worry about being responsible for who’s wanting, willing and qualified to continue to lead the business in the right direction
It is in your best interest to not leave anything to the acquirer's imagination. How can the acquirer grow the business in 3-5 years?
Create a thorough selling package with your deal team that will enable you to get paid top dollar for your business.
7. Retainers over projects
Have long term contracts in place (3months to 2 years).
Sticky customer base (Low churn rate)
Recurring revenue is the name of the game!
Client base should ideally be a minimum 70% retainer based.
Project based income is worthless - there’s no security in that/
Charge more - Increase the amount of profits per client.
8. Verified Year Over Year growth
At the very minimum - showing an upward trend over the past 2-3 years + forecasting an additional 6-12 months of momentum will play in your favour.
9. Healthy and sustainable profit margins
At one point, 10% may have been acceptable.. But these days if you’re only achieving a 10% bottom line either your bleeding cash and your business is not as efficient as it could be OR you’re in some sort of a high growth mode where you’re reinvesting a large portion of your profits back into the business.
In the current state of the industry - especially with efficient digital agencies/businesses
15% fair (Weak processes)
30% good (Strengths have been identified - and processes are efficient enough to be consistently profitable
50% excellent (At this point - not only are the implemented systems strong , they have most likely been automated, picked apart, refined, and perfected a few times over. Predictability is achieved.
10. Streamline the business development process
Fully automated system that pre-qualifies your leads and converts them into appointments/demos for your sales process to kick in and consummate the transaction.
Outbound Lead Generation Ie. Direct outreach method of choice, Appointment setter, Closer
Inbound Lead Generation
Referral Partnerships Ie. Developing a referral relationship with firms who offer complimentary services to your business.
Do you have an implemented and tested system that not only works but DELIVERS results (Tracking KPIs)
11. Don’t be afraid to work with professionals
Just like all acquirers are not created equally, neither are the professionals who can help you sell your business.
Can you still operate your business effectively with a firm eye on the end goal of getting through legal and financial negotiations, sourcing and vetting potential parties, while staying up to date with industry trends ?
It is recommended that you have the following advisors (deal team) ready to walk you through the whole deal process effectively: 1. Accounting Advisor (helps you with valuation and getting materials) 2. Legal Advisor (Reviews all agreements and used as counsel) 3. M&A Advisor (Directing the whole deal process and executing the transaction by collaborating with the selling party).
This is a team sport, every partner needs to play their role.
Questions to ask - Do your research.. Do they look credible? Who are they, how long have they been in business, who are their partners (are they credible), so on and so forth.. Do they have experience in YOUR industry? But at the end of the day, you won’t have a good experience working with an M&A professional (Advisor, broker, etc) unless either of your personalities and character are a good fit.. Do you work well together? Have a few calls.. Do they seem pushy? Or do they seem genuinely interested in helping you? Do they have your best interests at heart?
12. Embrace an initial valuation and be prepared not to like it
Your business is only worth what the market is willing to pay for it.
The agency’s revenue & profits, operational structure, years in business, supporting technology, growth opportunities and the current buyer pool are just a few of the factors that go into determining a valuation of a business.
If from day one, you haven't been building your business with the intention of selling it - you may not like what we come back with at first - but this is intentional, it’s more or less a reality check - a valuation from a buyers lens. Our job is to work with you so we can get this valuation where we want and need it to be in order for you to exit happily and without regrets.
13. When selling - develop a strong marketing strategy
Start with developing a great listing.
Include relevant financial information.
Provide geographic information.
Include colorful descriptions and great photos.
Create a catchy headline.
Clearly identify contact information..
List your business in two categories.
Strong executive summary/teaser
Strong prospectus (15-20 pages of key details - visually stunning - bring your branding A game)
14. Pre-Screen Potential Buyers - reverse due diligence
Understand the Types of Buyers in Today's Marketplace. (Strategic buyers, financial buyers, high net worth individuals).
Start Investigating Buyer Capabilities.
Determine Your Requirements and Conditions
We are most concerned with a buyers track record and financial ability.
Rigorously qualify and vet all prospective acquirers
This can and will save you A LOT of time and energy.
They should be open and transparent with you and be patient through this process.
Are you communicating with the decision maker? Have they done business in your industry before?
How are they planning on financing the deal (debt? Where are they sourcing it?)
Is the buyer's payment coming from the bank? If yes, is the sellers deferred payment subordinate to the any senior bank borrowing? Who gets paid back first?
How many deals has the buyer completed?
How long did it take them to consummated a transaction?
Do you have references for past successful transitions.
It's important to decide what you want in a buyer before you list the business.
Determine the level of experience you expect in a buyer, the required cash down payment and the ideal timeframe for the sale (serious buyers will have a mandate and past track record of successful acquisitions)
Build rapport
Try to have a genuine conversation about anything but the business.. Ask questions.. Let them ask questions.. Build a foundation for positive negotiations.. Understanding each other on a personal level and lead with humility and empathy.. this will leave room for a favourable outcome vs allowing the negotiations to be formal right from the jump.. May naturally seem hostile, egos may come into play, your lawyers (if you let them) will take control of the conversation..
Trust their word - until they give you a reason not to. We recommend going with your gut instinct on this one.
15. Be open to negotiating a (mutually beneficial and fair,) creative deal structure (cash, seller financing, terms, etc)
Very rarely will a buyer come to the table with an all cash deal at full list price.
Know what your business is worth and know how flexible you are willing to be with terms .. Ie. if you’re presenting a business that can (and has been) run autonomously without you at the helm steering the ship, achieving sustainable profit margins.. Then you know a lengthy, performance based earnout is out of the question.
Be wary of any long-term payouts or partial share purchases - unless you understand are convinced about the forward looking vision of the company or larger hold co. (typically.. Like a home builder.. They have a past record of success or failures. Referrals from past acquisitions .. requesting audited financials.. Etc.. major reverse due diligence
Buyers will almost always try to negotiate terms that mitigate their risk as much as possible .. may include seller financing, an earnout based on performance targets or years of time ownership will be tied to the business post transaction.. Or even a staggered payout released in tranches over time.
16. Have a trusted attorney and CPA on hand for more of the technical question answering.. And to review the final contracts
We say trusted because the more lawyers and bankers that are added to the deal the higher the chance the deal falls apart. You need to make sure that your attorney is taking necessary steps towards the end goal and not simply creating work by billing you hours.
Perhaps negotiate an employment contract where your goals are aligned as opposed to them making higher fees the more revisions that are submitted back and forth between.
It’s easy to say hire a reputable lawyer at a big firm, but that doesn’t always net you the best results. Some lawyers bog down the sale by overanalyzing minute details and pushing back so much they scare away the buyer.
With the help of your M&A Advisor, remain in control of negotiations.
Lawyers tend to ‘take over’ discussions. The last place you want to find yourself is on either end of the table with either party's lawyers communicating to each other.
You need to be competent enough to know what you want out of the deal - and to understand that your lawyer works for you - you, as the owner of the business, approve the terms. Don’t get confused by their legalese - demand that they structure and communicate in layman terms for everyone to understand - leaving no room for misinterpretation.
17. Put agreements in place to protect the business & disclose information gradually
NDA immediately before anything or even an MNDA
Slowly release business information and try to not disclose uber sensitive information.. Ie - the systems and process that make your business 7+ figures a year.. the customers that are generating you 6 figure contracts and the lead generation systems you are using to close them.
Discussions should be a courtship.
Prospectus (Work with your deal team to include all essential financials including last 3 years of P/L statement and balance sheet)
18. Create an unfair advantage - positioning yourself as a leader in a specialized vertical market
If your company has a unique clearly defined target customer, and years of experience in a specific industry, then you have a significantly more valuable business in the eyes of a buyer(Ie: Specializing in Golf eCommerce.
Offer a specialized service/product that will be sold to a vertical within a market in which the agency has deep insight and years of experience.
19. Create a well-respected brand.
Strong Good will (recognized brand name).
Recognized leader or top company within the market.
Strong relationships (Strategic partnerships,alliances Referral partner program).
Plenty of testimonials and referrals.
Executing on a digital PR/content Strategy.
20. Branded client list
If a larger company is buying your agency, they may be looking for an impressive client list or a highly talented team.
Ensure your contracts are transferable!!
21. Have cash in the bank
This proves you’ve managed your business responsibly.
Having cash in the bank gives you leverage in negotiations.
22. Preferably debt free
Acquirers don't want to have to worry about debt owed or liabilities
Having little to no debt gives you leverage in negotiations.
If Debt exist, ideally it should have been incurred from working capital.
23. Own your real estate (If any at all)
Long term office leases are a burden and can be interpreted as a liability
24. Customer concentration vs. diversification
Concentration / specialization in a specific vertical is a plus.
Diversification of customer base (no one client should be more than 50% of your total portfolio.
Diverse location of customers is important. Having clients in 3+ countries versus clients in one country gives your company an advantage from a risk perspective.
25. Be patient and go with your instincts.
Trust your intuition. Not all decisions can be justified via spreadsheets or with table valuations. It is important for you to stay vigilant in the process and understand that you will have the best idea of the potential of your business. Your deal team is there to help you prove it.
We hope this resource comes in handy.
Remember.. it's an anecdotal guide based off both our experiences as well as crowdsourced data from hundreds of conversations with founders just like you.
If you're a founder of a Digital Agency, we'd be happy to help you get started by first learning a bit more about your business.
Feel free to either give us a call or shoot us an email!
Michael Mione
Damian Yeboah