Getting the most out of an M&A as a buyer or seller with Drew and Danyel McLellan

Hey, before we get to the show, I just wanna remind you that we have created a private Facebook group just for you, our podcast listeners. There are almost 1500 agencies, agency owners inside that Facebook group every day talking about what’s going on inside their shop, asking for resources, gut checking decisions, talking about everything from pricing to hiring, to biz dev. All kinds of things are happening there. We’re starting conversations. You guys are starting conversations. What I love about it is the community’s coming together and sharing resources, encouraging each other, and just sort of having a safe place to talk about what it’s like to own an agency. So all you have to do is head over to Facebook, search for a Build, a Better, Agency Podcast group, or Build, a Better, Agency Podcast.

And you’ll find the group. You have to answer three questions. If you don’t answer the questions, we can’t let you in. But they’re simple. It’s, do you own an agency or do you work at an agency? And if so, what’s the U R L? What are you trying to get out of the group? And will you behave basically? So come join us. If you haven’t been there for a while, come on back. If you haven’t joined, join into the conversation. I think you’re gonna find it really helpful. All right, let’s get to the show.

It doesn’t matter what kind of agency you run, traditional digital media buying, web dev, P r r brand, whatever your focus, you still need to run a profitable business. The Build, a Better, Agency Podcast, presented by a White Label IQ will expose you to the best practices that drive growth, client and employee retention and profitability, bringing his 25 plus years of experience as both an agency owner and agency consultant. Please welcome your host, Drew McLellan.

Hey everybody. Welcome to another episode of Build a Better Agency. We’re super excited to be back with you. As you know, if you’re a regular listener, every fifth episode is a solo cast. That’s where I or Danielle and I together come and just chat with you about something that we know is on your mind and that happens to be this episode. So if you’re new to the podcast, have no fear, we’ll be back with a guest next week. But you get just the two of us today and we’re gonna talk about a topic that we’re being asked about quite a bit. So one of the great things about a solo cast is I get to remind all of you that you have the opportunity to win a free seat at one of our workshops. And the way you do that is super simple.

You go to wherever you download the podcast and you leave us a rating and a review. So you can say one star, they suck. You can say five star. They’re awesome. They make me cry every week or anything in between. But

All you need dancing, dancing would be better. They make we dance every week.

Oh, I like that. I like that. Yeah, okay. Dancing or crying, whatever we evoke in you. But you need to take a screenshot of the review and email it to me, because even though we read all the reviews, everybody has usernames and we have no idea who you are. So you know, if you’re biker babe, 1 0 2, I don’t know actually that that’s, you know Bob who owns an agency in Milwaukee. So you need to take a screenshot. I

Wanna meet biker babe. Bob,

Who’s Bob? Yeah, I think we all do. Anyway, send us a screenshot of the review and we’ll put you in the drawing and your name stays in the drawing until you win. So sooner or later, it’s gonna be your lucky week this year, this week it is Colleen Gallagher’s, lucky week. So Colleen, congratulations. I will shoot you an email and let you know that you are the lucky winner, but any a m I workshop that you wanna attend, you’re welcome to join us for no cost other than coming to see us in Denver. So super excited about that. Alright, so what we’re gonna talk about is it’s 2023, if you’re listening to this in real time, it is September of 2023 and there is more m and a activity in the agency space than ever before.

And so we’ve been asked a lot to talk a little bit about what’s happening in the m and a space, why it’s so active, and what you need to be thinking about if you are either in, in the position of wanting to sell an agency or buy an agency. And you might want to be buying an agency because you already have one and you wanna add to your service line by having in something new. Or you might be a, an employee who’s looking to buy out a founder, or in many cases you are an agency owner who is ready to sell. So let’s talk a little bit about why all of this is going on. So, you know, when you think about it, most agency owners are probably a little north of 50 in their mid forties, early fifties.

And so they’ve gone through a lot in their, in the time that they’ve owned an agency, they’ve survived nine 11 a great recession covid. And honestly, some of them are just like, you know what? It is time I am ready to cash out. So we’re seeing more fatigue in some agency owners of that age group and they just really feel like they don’t have as much gas in the tank as they used to. And for many agencies we’re seeing a lot of energy around the idea of resetting and reinventing,

Right? So even if you’re not thinking about buying or selling, I think that we’ve all been so reactionary going through Covid and then having, you know, the great exodus of employees and fighting for talent that is of a higher, higher salaries. And so we’ve been reacting and also if people are gonna be working remote or if they’re gonna be working in office, and there’s been so much we’ve been dealing with as agency owners, it’s been reactionary in this time period just to keep the doors open just to, to get by. So this new reset is really important. And again, some people decide that the reset means that I don’t wanna be in the agency space anymore.

For some people it’s like, okay, now it’s time for us to grow. We’ve just been surviving and we want to grow. And, and merging or acquiring another agency is an awesome opportunity to do that.

Yep, for sure. So, you know, another reason why I think we’re seeing a lot of the activity is, you know, many agency owners have really had a great run over the last three to five years, super high profitability. And that combined with the fact that they’ve, they’ve been smart about pulling money outta the business, investing in other things. And the fact that things are getting harder is a combination that go, you know what? I have had it great and maybe it’s time to tap out as I look over the horizon and go, yeah, I don’t, those new challenges don’t sound that interesting to me. I’m in a good position, my family’s in a good position, it’s time to go. You know, I think another reason why there’s a lot of activity right now is because of the things that we just talked about.

People who are interested in buying an agency can sort of smell that there is opportunity in the water and in some cases desperation. And so you’re seeing a lot more, and many of you have seen this and I think we’ve talked about it in newsletters and other podcasts, but you’re all getting emails every day from somebody who’s telling you that you can be a bazillionaire if you sell your agency. So not only are agency owners more prone to be interested in thinking about selling, but there’s a lot more sharks in the water swimming around telling you how great it is to get in the water. So you gotta be a little careful about some of those offers and we’ll talk a little bit about what a typical offer looks like so that when they are telling you about the ridiculous multiples that we’re hearing people talk to you about, you’ll know you, you know, your meter will go off a little bit and say, well, maybe it’s probably not that great.

Another reason why there’s a lot of buying and selling right now is ’cause there’s a lot of cash in the marketplace. Many agencies or other businesses still have idle money if they’re from the US and so they are feeling cash rich, they can invest in something else like buying another agency rather than building say a PPC or s e o department, right? They just buy a small shop. S b a loans are very easy to get right now the interest rate keeps going up, but actually qualifying for an s b a loan is, is pretty easy. And so a lot of buyers are feeling confident that they can finance the purchase of an agency. And we’re also still seeing a lot of roll up activity. So a lot of big, big box agencies or you know, $5 million agencies wanna roll themselves up into something bigger that gets to a 10 year, 10 or $20 million mark because they know that they can command a premium price at that size.

So lots and lots of reasons why we are seeing more activity and why you’re seeing it too as agency owners and leaders,

Right? And a lot of the rollups that are happening are industry specific or, or actually service specific. So I know we’ve, you’ve all heard many times about the importance of how specializing and, and having a niche and those seem to be the ones that are much more attractive in the rollup options Yeah. And serving a certain industry. So that’s one thing we’re seeing a lot of and continue to see a lot of for sure. So a lot of you have been talking about the importance of what makes a difference in evaluation and there’s a few things that really will continue to have your numbers be where they need to be. And the first thing is the higher owner compensation.

So if you have been giving yourself a great salary, you’re taking dividends from the profits regularly, you are doing a lot through your pass throughs, be it the standards, you know, cars, cell phones, but also allowing yourself for travel and really taking a lot of the perks of ownership that reflects back into your, your compensation. So anybody who’s looking to buy, you will know that that’s gonna get rolled up to either them or they’ll be able to reinvest partial parts of that into the agency. So that’s very attractive and it looks great in evaluation. So

One of the reasons why it’s important to understand what adds value now is a lot of times when we deliver a valuation to an agency owner, they’re disappointed by the numbers. And at that point it’s too late to change the numbers, right? So we’ll talk in a little bit about sort of what you should be doing five years out and three years out, but understanding what Danielle’s talking about in terms of what increases the value of your business, understanding that today, and really seeking to make some changes in your business so that when you go to sell two years, three years, four years down the road, you have done the hard work that actually increases the value of your agency. And one of the places that I think agency owners really hurt themselves is how they compensate themselves.

We tend to be very generous with everybody else on the team, right? If anybody’s gonna kind of take it in the shorts, it’s the agency owner, we lower our salary, sometimes we don’t take a salary. And while in the short run, that seems to be a very generous thing to do, or a way that you don’t have to lay somebody off in the long run. What it says is, a, you’re not running your business by the numbers, but B, whoever buys your agency isn’t gonna make much money. Right? And nobody wants to buy a business where they’re not gonna make money. Right?

Exactly. And this really comes up a lot, especially in internal sales because your internal team looks at your numbers and says, well, what am I doing with buying this agency or taking this big loan if I’m not actually getting compensated or have any of the benefits that an owner would have? Right? I don’t wanna be buying myself a job when, especially when I could go to another agency and be making just as much money with a lot less risk and a lot less stress. So, and even if you’re not thinking about selling, this is something that we preach early and often, that you should be looking at your compensation first when you’re growing your agency. So even if you’re in your twenties and thirties and you’re not thinking about selling right now, really focusing on how you can add that value will keep those numbers where they need to be.

So you don’t have to retroactively try to catch up when you’re ready to actually sell.

So, and that’s a great point because again, we’re talking a lot about buying and selling agencies, but the truth is, for many, many agencies, they are never afforded that opportunity. You don’t build something that somebody wants to buy or you’re not in a position to buy something else. So you’ve really gotta build your wealth while you own the business. And, you know, money matters. We talk a lot about, you know, thinking of your a, your agency like an a t m and you have to make regular withdrawals so you can invest in other things outside of the business to grow your wealth. So to your point, Even, if you never sell your agency, thinking about your compensation package early in your agency owner career is really to your advantage.

Absolutely. Another thing that really drives value is your area of expertise. What you specialize in, again, it just gives the buyer some additional faith that their, their business is gonna be running well, that they can see you in the mix. and it really drives the bottom line and shows your, your uniqueness and your differentiation that with a balanced client list with annual contracts. So if the retainers that we can get and if the balance of clients that there is no big gorilla. So if the big gorilla leaves, then the value of the business plummets pretty significantly. So trying to get your client list very balanced.

So if you do have a gorilla, you should be looking to get a few more gorillas in the sense of, or, you know, having turn

’em into monkeys.

Exactly. Turn ’em into monkeys or take your existing clients that aren’t the gorilla and push to grow them. So you are a lower risk for somebody who’s coming to buy you because they know that the revenue’s gonna be there And, if you lose one client, it won’t be detrimental to the bottom line. Right.

Well, and you know that one of the things we’ll talk about in a little bit are the multipliers, which is a topic everybody cares about. But to your point about specialty and niching, it’s really tough for a generalist agency to get a buyer at all. But it’s really, really tough to get a lot of value outta your business when you sort of serve the local butcher, baker and candlestick maker, right? So not only are you differentiating yourself, but you are demonstrating a value that is very different than a generalist

Agency, right? We’ve seen very few generalist agencies sell, but when we have, it’s because of their co their actual client list. So if somebody in a geographical region, like a big bo, the the big brother, big guy of your, your town that may want to acquire you, but that’s because you have a very strong client list and they can see the synergies between their agency and yours. Yeah. But that again is, that is not what the high value, a generalist is not as high value as somebody who’s more specialized. Another thing that’s extremely important is that most of the owners that are thinking of selling tend to be the people that drive the new business for the agency.

So what adds value is for you to be irrelevant in that. So having a reliable way to keep the pipeline full without your involvement, without the seller’s involvement is really crucial. A lot of internal sales that we see where the owner, who is the driver of most of the new business, that that’s the hardest part of the transition is to figure out who’s going to be doing it now and how is this pipeline gonna stay full? People don’t wanna take r risks as you, again, when you’re looking at the business in the bottom line, your risks are higher if you don’t have a reliable pipeline that you can fill, right?

’cause otherwise, if your clients, you know, if you have attrition in your clients and you can’t fill the pipeline, then the value of the business obviously diminishes. So having confidence in the ability to sell and, and attract new clients is a critical thing for any buyer, internal or external.

So you should really start tracking what your close rates are, understand that the people that you want to be involved are actually selling the strategy and that it isn’t dependent on you. And that usually takes a few years to get into place if you’re not doing it already. So that goes into actually anything that you’re doing inside the agency. The value of the agency is really dependent on your irrelevance. They need to see that if you leave that the, the agency is almost turnkey, that it can run by itself or they can fill in the gaps. But if you’re deep in the client work or are relying on all the client relationships, that’s problematic. And so that it’s, it’s, it’s anti to what we think of adding value to our agency.

But being irrelevant is super important. And that generally means that you need to have a strong leadership team that runs the day-to-day, which again, you have might have some strong leaders, but actually optimizing their skill sets and having them run as a well-oiled machine without your direct involvement. You, and you’ll know this is the case if you can take, you know, three weeks off and nobody talks and nobody calls you and you don’t get any texts, there are no fires, right? There are no fires. And any fire that happens that’s being taken care of, that’s when you know you have a good leadership team in place. Super important. Another big part of what adds value is the documenting and, and having all your systems and processes documented so they’re not living in one person’s head or a few people’s head.

Again, think of turnkey. You want somebody to be able to go in and know exactly how you do the work and, and the KPIs associated with what is, what’s going well so that they’re able to run the agency really clean and clear. If you have a couple key people that all of the knowledge in your agency lives within their heads, that is a liability. And so really working in while you’re preparing for the, for a sale to have, how you do the work documented and should be scalable, teachable, repeatable, and consistent. So the agency way is very clear, huge part of evaluation. Obviously no debt or long-term liability adds to the value.

And it’s important to just know that you’re doing everything to keep your agency as strong as possible and you can prove those things in the numbers. So what you look at as for a, for your scorecard and having that consistency, they don’t wanna see a lot of waves. And of course in the agency world, you know, they have some ebbs and flows, but as consistent and constant that you can show your numbers for a five year period of time will only add to your value.

So a lack in any of these areas, the way you compensate for that when you sell your agency is you have to stick around and fill in the gap. So if you are not irrelevant, if you are the biz dev person, if you are the one that carries all the tribal knowledge of systems and processes, or you’re the one that has the deep relationship with the big client, that gorilla client, the whole reason you’re selling the agency is because you want to not be there every day anymore. And when you are deficient in any one of these areas, it is, it increases the likelihood that you have to stay for a period of time after the sale. And so again, if you want a clean break and you wanna be able to sell and walk away and go on to the next chapter of your life, understand that not thinking about these things and not putting a plan in place to really strengthen yourself and your agency in all of these areas, puts you at risk of not being able to do that.

And with an external sale especially, they’ll be picking apart every piece of your business to try to draw down the valuation. So any of these things that come out murky will be a topic that they’ll bring up to say, hmm, I don’t know if the numbers, you know, if you still, you’re the biz dev lead or again, there’s no leadership team in place, so you

Just want to, you pay yourself very well.

Exactly. You want to try to minimize any of those hits that would go to what you will get for your agency as and be consistent about that. So

Yeah, so speaking of evaluations, people are always asking us sort of what is the methodology? And so this is gonna be a very backup napkin math, obviously it’s a very complicated thing. We ask for all kinds of financials and, and all kinds of other questions. But in general, whether the number that we’re looking for is your EBITDA number, so your earnings before taxes or your net profit or a g i. So again, just for anybody that hasn’t heard us preach this a million times, as you know, gross billings is irrelevant to an agency. It’s gross billings minus all of your cost of goods, which is anything where you’re the bank for the client could be printing, photography, contract, labor, all of those sort of things.

Media. So gross billings minus cost of goods. And what’s left is adjusted gross income or a g i. That’s the money that we have as an agency owner to run our business. We spend it on our people, we spend it on overhead, and hopefully there’s some profit leftover. So whether at the end of the day we’re gonna look at a multiplier based on EBITDA or a G i, I’ll get to that in a second. But what we’re gonna do is we’re gonna ask for the last five years of financials, we drop the high and the low and we average the other three. So if we’re looking at an A G I number, typically what we’re seeing is a multiplier of one to two times, but honestly two is pretty rare. One and a half is probably about as high as we normally see.

And again, that’s gonna be for an agency that is checked all of the boxes. So let’s just say the average of the other three is a million dollars, you’re gonna probably get about a million to 1,000,005. And the, the list of things that Danielle just took you through are the things that are gonna make the difference between an $800,000 sale and a $1.5 million sale if it’s ebitda. So again, it’s your net profit before taxes, then it’s probably a three to seven time multiplier. And I know you’re all getting emails about 10, 12, 15, 20. As Danielle said, what happens is they say that in the beginning and then they start nitpicking down.

But typically we’re seeing about a four to five time multiplier on ebitda, which ironically, if you’re running according to a M I numbers, which means you’re at 20% profit, four to five times EBITDA is one times your a g i. So it’s a little, you know, six to one, half a dozen the other, and everybody looks at a little differently. We tend to look at it as a g i because many of you run your business in a way that is, it is absolutely profitable, but you’re also doing the pass throughs and all the other things. So a g i is a more accurate number of what the agency is worth that doesn’t take into account all of the tax strategies and other things that you may be implementing inside the business.

Absolutely. So that’s basically the, the methodology, the back of napkin version of the methodology evaluation. So, you know, for most people, it’s really interesting when we talk to agency owners pretty much every day of the week, and you know, a lot of times you’re not thinking about selling until you’re really thinking about selling, right? And that is a little shortsighted for you. And so there are some things that you should be doing maybe three to five years out, long before you’re ready to sell, long before you’re ready to have conversations with anybody internal or external about the purchase. But it sort of sets you up for success.

So number one, what you ought to do is, you know, three to five years out, you should do an initial valuation. And the reason for that is not to decide what your agency’s gonna sell for in five years, but I know when we do valuations, we come back and we’ll say, okay, well your agency is worth this, but if you did these five or six things, you would be able to increase the value of your, your agency. So if you do an initial valuation three to five years out, you can identify some of the weak spots in your agency that diminish the value of your shop, and now you have three to five years to fix that, right? Right. And to make it worth more money.

And it’s, again, we always preach to having the longest runway possible because we feel like that is going to allow you to have a, a few different options. We have a tendency to get a little mono focused and put all of our eggs in one basket. But just like anything, some things can fall through. You might have somebody who you believe is going to be a great person to take over the agency, they, they show interest, but as they go through the process, they say, you know what? Agency ownership isn’t for me. So then it puts you in a position that you are, you’re ready to go, you’re ready to sell, and now you have to find your plan B and maybe C and maybe D. So if you’re doing everything that you need to do to keep your options open, or as many options open as you can, keeping that agency strong, keeping the valuation strong, just know that sometimes we have an idea as well about, this is my absolute end date.

We’ve seen so many times where either the sales starts to escalate, so it will be, oh wait, I’m gonna be out for it in five years. But once we start talking, well, two years seems to make more sense for the, for the buyer. So you just need to be a little flexible within that and know, understand that everything that you do for the agency is gonna increase its value and you need to keep that in your, in your purview.

So this is why we’re talking about the long game because the shorter of the window that you open up to think about selling your agency before you wanna sell, the fewer plans you can have, right? So the options get smaller and smaller and smaller is you get closer to when you wanna get out. So this is why the long game matters so long before the sale, you need to be thinking about, okay, I wanna sell to an employee and I think it’s this employee, but you have no idea, three years from now that employee might leave, you might fire them, they might, you know, get sick and have to take a leave of absence. They might have a financial issue or they can’t buy the agency.

But if you only have six months before you want to get out, and if that person falls through to your point, right, there is no plan B or plan C. So, all right, so do the initial valuation, spend the time and money building the agency’s value over the course of those three to five years so that you can sell it from a, a premium price. Another thing you need to do is you really have to understand why you’re selling and when you wanna get out. And, you know, if you pick a date five years from now, it’s probably not gonna be the exact date, but it, it, that thought process is gonna say to you, I don’t wanna get out in two, I don’t wanna get out in three, but I don’t wanna be here for 10. Right? So it at least helps you narrow down the window of when you wanna sell and why you want to sell.

Do you want to se do you want to go till you’re absolutely exhausted and you just wanna tap out? Do you want to go right after you’re done paying for the last kid’s college tuition and you’re still 55 and you wanna travel the world? Like you have to just have some clarity around what’s gonna motivate you to sell and when you wanna do that. Right?

And I also think it’s important to know that when we decided to buy businesses or start our our agencies, it was because it allows us a lot of freedom. And so this final chapter should give you as much freedom as possible so you are able to create a legacy that matters to you, that you understand what really does matter in this sale. Is it, is it the big check? Is it that your agency goes on with the team that’s helped build it? Is it that, you know, I care about how we show up in the community, so this is gonna be important in the legacy. So having that inner conversation with yourself of what is important for you to leave for your legacy is, is, is just as important as the bottom line of the valuation and the checks that are written at the end of the day,

Right? Because at the end of the day, when you sell the agency, yes, you have a check in your hand and you may keep getting checks for a couple years, but you also wanna walk away feeling good about how you sold it, who you sold it to, what’s gonna happen after you’re gone. And that’s really the legacy piece. And you know, the another mistake that a lot of agency owners make is they have in their head three to five years out, you know what I’m gonna sell in three to five years and I’m gonna sell it to Babbette. But they don’t actually talk to Babbette and Babbette has no idea that the agency owner has this plan for them. And so Babbette gets a job offer for $10,000 more a year, takes that job offer because she didn’t know that she had the opportunity to be the next generation of leader.

The other mistake you make is you do have the initial conversation, but it’s a, Hey Baba, would you like to own the agency someday? I think you’d be great. Well, no one is gonna say no to that, but, so you need to have that initial conversation way before you’re ready to start at least a year before you’re ready to have the initial, like, let’s get down to brass tacks and talk about money and all of that. But in the initial early conversation, you need to say, you know what, Baba, I I think you could be a great agency owner and I, I am hoping that you would’ve interest in buying this agency someday. I would love to sit down and talk with you about what that would look like. We can talk ballpark numbers, we can talk about how e how buyers finance, ’cause I’ll tell you what all your employees think, they can’t afford to buy your agency, right?

I cannot tell you how many conversations we’ve had with agency owners or agency employees who have said, I would love to buy it, but I don’t have that kind of money. They don’t understand that they can go financing it. They don’t know about how they can go to the S B A. So you wanna have that conversation, right? And give them a sense that what, what it would take to buy the agency that it is absolutely possible for them to do and plant those seeds so that they can start thinking about it. But it’s also a way to kind of set the hook a little bit so that they don’t make a short term career decision that robs them of the opportunity of maybe being an agency owner and takes your plan B and throws it out the window,

Right? And I think the, we see this often too with buyers that they really don’t understand the finances of the agency. That’s one of the things that we as owners keep really tight to the chest until we really get into the negotiation of what this could look like. Because of course, as a buyer, a potential buyer, this is all theoretical. So yeah, great. Well what does that mean? What does that mean for me as far as the actual numbers go?

Both the, both the cost but also cost the opportunity. Opportunity. Oh, I could make $400,000 a year, right? Okay. Exactly.

Right. Exactly. So having those discussions are really, really important. The second thing that’s extremely important, once you get into the transition of transitioning your agency from you being the owner to the next owner, there’s a few things that can go really wrong and affect the sale. So one of the reason, one of the most important things to keep a transition as seamless as possible is the clarity in your communication. It’s important to get comfortable in the discomfort of that. You will have to have more candid conversations with people. And this, especially with the internal sale of what their expectations are, what the plan is really keeping that communication clear and open allows for a more seamless transition because it gets a little messy in the middle, there’s a gray area after you sign your letter of intent and you go into the transitionary phase where you’re giving the buyers different tasks that are for the owners and whatnot, that there, there’s, it’s a really hard period where the agency owner is trying to let go and the buyers are trying to grab more of what those, that role will look like.

and it isn’t, it’s there even with the best communication, it’s not clean cut and it gets uncomfortable for both sides.

You know, it, it’s, we talk a lot about, especially again with internal sale, you have to recognize in most cases, this is a very long-term relationship and it’s a little maternal paternal in that, you know, I’m the agency owner, I’m selling it to one of my employees and they’ve worked for me for 15 or 20 years or 10 years. And so I’ve been their boss for a really long time and they have been a great lieutenant helping me accomplish the agency’s goals and all of that. But it is a little like a parent child relationship and there’s this dynamic and this power thing. But now all of a sudden Baba has decided she’s gonna buy my agency and we’ve signed the letter of intent, we’ve agreed on the purchase price, and we are now going through the 6, 9, 12 months of transition before the loan is done.

The purchase agreement is signed and I hand her the keys. But the reality is, a lot of the decisions that are being made in that mushy middle are actually gonna affect that bet’s agency more than me as the seller, but I still own the agency. And BAE is used to saying, well Drew, here’s what I think, but I’ll do what you want me to do in this middle section. There has to be a shift where the buyers start to really take the leadership role, right? And drive the decisions, which is really uncomfortable for everybody. For the, for the buyer. It’s like talk, it’s like sassing back to their boss, right? Especially if they don’t always agree on what the decision is.

And from, for the seller’s point of view, sometimes the buyer is making decisions that cost the seller money. And really the, it’s, it’s like planting a seed. It’s like, it’s like paying for a gardener to seed your, your yard, but you’re not gonna live there when the grass flowers comes up or the flowers come, but it’s still your money. And now somebody else is deciding how to spend my money for the, so that their yard is nice. So it’s, it is a very challenging time and we spend a lot of time counseling and working with both the buyer and the seller to get through of that. So you just have to know, to your point, you gotta get comfortable in the

Discomfort. Right? Exactly. And the clarity communication isn’t just between the buyer and the seller, it’s also between the owner and the employees. And there’s always a lot of question about how do we communicate this? How do we, how do we get through the transition with our employees without them knowing exactly what’s gonna happen until it’s the appropriate time to have them? No. So a few things to keep in mind. It’s completely okay for you to be putting your buyers in positions that are key to the agency and have more of an executive role, put them in a promotion, put them on the executive team, and allow them to really take some ownership and leadership within the agency, which is a lot harder to do than you think, because again, your employees have been looking at you as the owner for so long that they’re going to need some encouragement to make sure that they’re actually listening to the buyer and getting that buyer in a position where it’s gonna be easier for the employees to transfer over.

The goal really is, and hopefully you have a long enough runway where it just feels like, oh, when they, when your employees find out that you’re selling it to the, the person that you’ve chosen inside, inside the agency, they’re like, oh, well this makes sense. They’re already making most of the decisions. So that should be the goal. And it’s human nature as owners that it gets really hard for some owners because they start feeling that lack of

And not relevant. Yeah,

I’m not really relevant and you want to be putting, adding value and you wanna find a place in that, but can be confusing to your employees. So one of the things that we really encourage is that the seller should be the buyer’s biggest support and cheerleader. Really putting your buyers in the limelight and allowing them to shine as leaders and to continue to coach them for that is, is really important for a transition to be seamless. Drew has mentioned the mushy middle, that gray area that usually can, you know, it can be up to five years, but generally it gets a lot smaller than that. You need to really assume positive intent because it is an emotional high stress transition for both you as an owner and for the buyer.

So you need to give each other some grace in that and know that it will be uncomfortable at different times for different reasons. Some will be relevant, some will be just a, the, just the natural progression of the transition. Just recognize that it’s a huge adjustment in this long-term relationship that you’ve had with the buyer and it’s a dynamic power shift. So both parties need to know that it’s, it’s, that’s gonna come into play and we work a lot with agencies during that transition time to make the clarity of decision making and kind of keep everyone on the path.

So just for clarity, when Danielle says, you know, five years of transition, she’s not talking about the act of sale from the time you sign a letter of intent to the sign time you sign, a purchase agreement is never that long. You would kill each other, right? So when we later, we’re, we’re gonna give you the sort of average timeline for both an internal and external sale, but it’s much shorter than that, right? The point is that in that active period of time, there is about a six month window where you are sort of tiptoeing around each other a little bit and you gotta figure out a way to have hard conversations. That’s all we’re saying.

One thing I wanna add to this is that so many times agency owners would like to sell internally and they think, gosh, I don’t know, I don’t know if I have somebody, I don’t think anyone can be an actual owner that are, is inside my agency. So really when you think about it, again, kind of five years in advance, you can start testing, testing some people and try, try to give them different projects that really serve the agency and give them opportunities to step up. Because oftentimes when they’re put in different scenarios that really test their ability to lead, some people will come rise to the occasion and you’ll be pleasantly surprised and some people won’t and that’s okay.

But then at least, you know, and you’re, you’re actually doing a little testing, but we have to keep in mind that the people who are gonna buy our agency are going to be different than we are. So it’s great if you find a mini me within your agency and you think, gosh, they’re, they just get it. They’re gonna run the agency just like I do. But that isn’t always the case and that’s okay. So

Actually probably good,

Right? So understanding some of the key elements of what makes a successful agency owner and really look at opportunities to see people shine in those areas and create opportunities to see people shine. And you might, you might be really pleasantly surprised in what you come and find out.

And honestly, most internal buyers act a little like owners way before they’re owners. You see sparks of that in them, in, in what motivates them and how hard they work and the questions they ask in their willingness to go above and beyond. But to your point, sometimes you have to set them up to demonstrate that, right?

Exactly. Exactly.

All right, so next what we wanna do is walk you through what both the seller and the buyer need to do to get ready for the sale. Like sort of mentally, emotionally, what do you have to get ready to sort of jump into this season of the act of sale. But, but first we’re gonna take a quick break and then we’ll be right back and talk about how do we get ready to be either the seller in a deal or the buyer in a deal. We’ll be right back. Hey, I know you wanna get right back to the show, but I wanna remind you that the 20 23, 24 salary survey, salary and benefit survey actually is out now with brand new data from over a thousand agencies of how they’re paying their team members, what kind of benefits they’re including in their packages.

And you can find that on the a m I website under resources and it’s just 99 bucks. So if that’s helpful to you, go grab it and use it in your planning, in your conversations with team members as you’re building out career paths and things like that. It’s super helpful to sort of see what everybody else is doing, what everybody else is paying. It’s broken down by geography and also by agency size. So hopefully that would be super helpful to you. All right, let’s get back to the show.

All right, so let’s get back to it. We were just talking about what we need to do to get ready as either the buyer or the seller of your agency. We’re gonna start with the seller. I’ve been through this process and not only myself but with a lot of other agency owners and there’s some things that we think about intellectually that might happen, but once we’re in it, it’s sort of surprising. So you might feel totally burnt out or totally ready to sell your agency, but we’ve been agency owners for our most of our entire careers. And so starting to understand and create an identity outside of your agency is sounds theoretically like it would be easy, but it really isn’t.

It makes that mushy middle, as Drew said, the gray area, even harder because you are so intertwined. I mean, we put our blood, sweat and tears into building the agency that we did and it’s very hard for us to extract ourselves from the agency. I mean, we think about like our money is the agency’s money and we are, you know, that it’s just, it is so inherent to who we are that it’s a challenge and it has to be given attention to try to identify and create your identity outside of the agency. And part of that is decide on what you want your legacy to be. As we talked about earlier, what do you wanna leave in your agency? What do you wanna give to the buyers to help them run the agency better?

What do you experience, do you wanna create for your employees? And understanding that that’s an important piece of what you’re going to leave behind, but that your future is within your identity moving forward.

Well, and the legacy isn’t just the legacy of the agency, it’s also about this next chapter, right? And that could be best grandparent ever and you’re gonna be with your grandkids every day. It could be you wanna write a book, it could be you wanna start another business, whatever it is, it is part of that. Who am I after? I’m an agency, right?

Exactly. And I think another important thing as a seller, we are so used to being at the helm that when things don’t necessarily go quite our way or we have high expectations about how we want something to go, it’s easy to get in. Disappointed, there’s going to be a lot of bumps in the road that, or frustrated or frustrated that you might not anticipate. So I, we always recommend to reset your expectations. It’s going to be harder than you think longer, oftentimes less money than you hoped for. So hopefully that you’ve already been building your wealth outside of the agency for a long time.

And this is just the ability for you to, you know, again, make some money, but that that isn’t your entire retirement plan because that will put a lot more frustration on you, a lot more pressure on the deal and it’ll make it a lot harder to pivot if something comes up that is unexpected. Sometimes things go smoothly, but just like life, there’s oftentimes bumps in the road and you have to really take it with a grain of salt and know that you just stick it, stick it out on the ride and, and it will end in a place that it needs to. But it can be frustrating. Well, and

You’re gonna be happy in the end. We don’t, I mean, don’t let us make it sound like it’s gonna be miserable, right? But you go in thinking, I’ve known these people or this person for 20 years, or boy, this buyer really seems, if it’s external, this buyer really seems like they have their act together. And it’s not that anybody doesn’t have their act together. And it’s not that everybody doesn’t have good intentions, it’s just the fact that this is complicated and it is hard and it’s not just factually hard, it’s emotionally hard, right? And remember you are, you are trying to repair the plane while you’re still flying the plane, while you’re selling the agency, you’re still running the agency and you know that on any given day the key employee could leave.

You could have a client that doubles their budget or cuts their budget in half. There’s gonna be stuff that happens that complicates the sale because it’s happening in real time while the agency is still functioning. So it just is the reality of the situation. You’re still gonna be relieved and happy and proud when it’s over. But the journey is not without as bumps.

Right? Exactly. And I think we put a lot of expectations on the buyers to show up in a certain way. And we as sellers need to have some understanding that they have been doing their job inside the agency for so long, it’s gonna take them a while to try to transition out of the employee mindset and into the owner mindset. And so we need to be clear that it’s gonna change. And there you’re gonna see more and more owner behavior. But part of our job as a seller is to encourage that behavior and give the opportunity for that and help change the dynamic that had been set as the employer employee dynamic.

It has to start to shift and it takes a little bit of time. So, so be really gracious in how you approach your buyers while they’re making that transition. And in the same breath, being honest with your buyer when you’re feeling that, you know, it’s, you’re having a tough time redefining your role or understanding that the sale and your motivation and the timing, if something does it isn’t what you initially thought. You just need to be clear with your, and honest with the buyer so they understand you’re human and within this too.

This absolutely. So, so on the buyer side, there are things that we have to do as well to get ready for the sale and, and a big part of it is a mental shift. So to your point, you know, internally the buyer has been your director of account service or your creative director or whatever they are. And it’s not like that all of a sudden they’re not doing that day job job while we’re transitioning. They still are trying to do their day job. Even if we’ve hired someone and we’re training them up to take in, take on their role so they can step into the role of owner, that’s not gonna happen until the sale is done. So they have to figure out how do I show up and do my job, but also show up as an owner versus a leader?

And that takes some, some very conscious decision making and planning. Another thing a buyer needs to do is, again, internal or external, is communicate with the seller about what they need during the transition. So it might be, look, I am the director of account service. There’s no way I’m already pulling a 50 hour week if I’m now supposed to learn the finance of the business or the all the HR stuff or whatever else I have to learn. I don’t have the bandwidth to do that, so I’m gonna need some help on the account service side so that I can carve out 10 or 15 hours a week in the beginning and maybe more as we get closer to the sale so that I can start stepping into that role.

Equally, it’s important for the buyer to say to the seller, look, I know this, you’ve never done this before. I know this is hard. Help me understand what you need from me to make this better. So again, everybody’s a grownup and we need to come at this like we are peers trying to make this better for each other, with our candor, with good conversation and with recognizing that this is challenging for everybody. And one of the ways to sort of recognize that is to sort of see that this, when you’re the buyer, it’s, it’s a little like walking over to your neighbor’s house and saying, Hey, you have a beautiful baby. How about if I raise your baby and you can just live next door to me and watch me raise your baby.

I mean this, the agency has been something that the owner either started from nothing or bought and then has nurtured for x number of years. And you know, as you know, as an owner, you think about it seven days a week, 24 hours a day, even when you’re on vacation or whatever, you’re always a little worried about the baby and now somebody is taking over the baby and as you said, maybe won’t raise the baby exactly the way we would as the owner. So the seller has to understand that, but the buyer has to really understand it, understand that we’re asking the seller to change decades of habit and muscle memory, right?

And where their heart is. So being understanding and compassionate around that makes a huge difference, right, in the, in the experience. But

On the other side of that, it’s also an opportunity for you as a buyer to be clear and communicate when the the seller is overstepping, right? And continues to, that goes back to that clarity of roles and communication and being able to say to the seller, Hey, I know this used to be your bread and butter. You used to be your task to do this thing, but remember we talked about that I’m supposed to be doing this now, I’m supposed to be leading the agency meetings, the all agency meetings, or you know, I’m supposed to be the lead on this client now because we’re transitioning this client or whatever the, whatever the thing is. It’ll be hard for you to do that because again, we’re trying to change that dynamic of employer employee, and now you’re working towards being that peer.

So it’s super important that you’re still able to reinforce boundaries and not just sit, say, well they’re the owner. So, you know, I, I’ll just, I’ll just take it, I’ll be c I’ll be quiet. It is a it, it will get easier and easier, but it will be uncomfortable at first. And another thing I think buyers really need to think about is how they’re interacting with the rest of the staff during this transition time. Because you really, you’re not telling the staff that you’re buying the agency, but you are stepping up as leading the agency. But a lot of times these are people that have been considered your peers. So how you are showing up during the transition will be really important in the transfer of that ownership to you and how you as a leader are going to show up after the paperwork is signed and the agency is yours.

So trying to gradually become more understand the relationships that you have with your staff and the importance of you helping and leading them so that it will feel very natural when you sign the papers and take the agency over.

Yeah, and hopefully you’re already on the leadership team and so some of that is already happening, but really magnifying it in the transition is critical. And then last, but certainly not least, you know, as we said, in a lot of cases the seller is paying for the gardener to come in and plant the garden, but they’re never gonna benefit from the fruit or the vegetables or the flowers or whatever analogy you want are gonna grow in the garden. They’re investing for your business for your future success. So recognizing that, you know, whether they’re paying for a valuation or they’re paying for consultants like us, or they are hiring someone to take over your job, right?

So that you have a lieutenant in place, once you own the agency, those are all investments they’re making, which are not gonna bear fruit for them. They’re gonna bear fruit for you. So recognizing and appreciating and verbally letting them know that you see that they are making these extra investments and spending some of their own money, right, to help you be successful in business. So be gracious in all of that.

Absolutely. And one thing I just wanted to add as well, we always recommend for the sellers, you know, you want to be able to take out money during this transitionary time as well. So having the buyers understand that that’s part of being an owner is to be able to keep the dividends coming in and being able to still profit as they’re still making investments and you’re going to start seeing the financials. And this is, that’s actually good news for you because you will know that when you own the agency that those benefits will be coming towards you as well. So having an understanding of that for

And, and the candor to talk about it. Because again, as you said earlier in the show money is one of the few things we don’t talk to our right hand employees about and now all of a sudden we have to.

Right. Exactly. Right,

Right. All right, so let’s talk a little bit about the typical deal structure both internally and externally. So typically for an internal purchase, so an employee or small group of employees are buying out the founder usually that that’s gonna take 12 to 24 months from the very start to the very end. And our goal is to keep it as short as possible. So 12 to 18 months is ideal, right? Unless there’s a reason why we have to go to 24 months because again, that mushy middle gets painful and everybody’s gets to the point where it’s like, okay, let’s just get to it, right? Yeah. Now hopefully the buyer has been thinking about buying the agency, but the seller for sure has to have been doing some planning a year or two earlier than that 12 month clock has started.

But figure ideally 12 to 18 months from start to finish. In most cases, we know what we pay our employees in most cases, unless they have a rich uncle, your employees are not gonna be able to buy you outright and just stroke you a check. So it’s gonna be paid for in one of two ways. Either they’re gonna take a loan from a bank and that’s almost always an SS b A backed loan or it’s gonna be owner finance. So again, if Danielle and I own an agency and we’re selling it to our employee Baba, we may decide that we don’t want the big lump sum of $2 million just dropped in our lap. That for us, it would be more advantageous for us to say, you know what?

Don’t go to the S B A. We will be the bank for five years, 10 years, whatever that period of time is, number one, that income comes to us over a longer period of time, which gives us some ability to deal it with it from a tax advantage. But it also, not only are we getting the principle of what we sold the agency for, but because we’re the bank, we’re getting the interest, right? So in most cases it’s S B A finance, but in many cases the agency owner or the agency owner and the buyer come to the agreement that’s actually better for everybody, for the owner to finance rather than the SS B A. Some advantages to the buyer of the owner financing are usually the interest rates a little lower.

You know, you’re dealing with somebody you know and typically care a great deal for. And so, you know, if times get tough, it’s a lot easier to get the owner to let you skip a payment or reduce a payment than it is the S B A or A bank. So there’s a lot of advantages on both sides if the owner is willing to do that. But understand if the owner isn’t willing to do that or wants the money upfront, that’s probably seven out of 10 times. That’s what we’re seeing that the S B A is financing, right? The

Deal there’s still, even with an S B A loan, there is still an opportunity for seller financing based on the down payment because the buyer has to put 10% down or somebody has to put 10% down for the SS B A loan to go through. And the requirement of the S B A is that there’s 5% for the seller and and the other or the owner, sorry, the buyer and the other 5% can be owner financed for that down payment.

Well, and remember they just changed the rule like a week ago. Now the owner can finance the whole 10%, whole

10%, which is another, which actually is great for some of your employees that it would take a little bit more for them to come up with the down payment depending on how large your agency is and depending a lot, there’s a lot of different factors where they’re at in life as well. So, but

We are not proponents and in fact we are opponents of the agency owner financing the entire thing. Your buyers have to have some skin in the game and they have to put some money in. So whether it’s the full 5% or the full 10% or it’s two or 3%, whatever it is, you shouldn’t finance the whole deal and they basically are getting it without any risk at all or any financing on their end. So anyway, S B A or owner finance, typically as we told you, it’s the multiple is usually one to one and a half times that a g I average. And it’s important to note that the industry standard is that there is always an internal buyer discount.

And so what we mean by that is typically the person who’s buying your agency or the group of people who are buying your agency have contributed significantly to your agency’s value over time. They’ve been on the team for the last 10 years, they’ve helped you double in size, they’ve helped you figure out how to be more profitable. And so the standard is that whatever the value of the business is, you take 20% off as a discount for that and for acknowledging the internal buyer’s contribution to the value of the business.

And the oftentimes the, you will be paying for an external buyer a lot more as far as the due diligence goes with an external buyer. You’ll have a lot more Expenses lawyers,

CPA lawyers,

CPAs, all the due diligence periods. So oftentimes that’s another reason why that 20% makes a lot of sense as well because you are able to minimize some of those other Expenses

Expenses.

Yeah.

So one of the great things about an internal purchase is because your buyers have been in the agency for so long, again, back to our point of, you know, if you’re not entrenched with the biggest client, if you’re not the only one who does sales, if that’s all true, then there’s little to no commitment for you to stay on post-sale. In fact, they kind of by then want you to get out. Like it’s like, okay, it is time for you to move out of the house and let us raise the baby, right? So if you are looking for a quick exit after the execution of the sale, an internal purchase often gives you that. And an agency sale, by the way, external or internal, is almost always an asset sale as opposed to an equity sale.

So what that means is the buyer is forming their own company and they’re buying the assets of the business, but they’re not buying the actual stock of the business. So if you ever want to have that conversation, it’s too long to get into in this podcast, but just know that almost always it’s an asset sale. So on the external side, sometimes depending on the buyer, who the buyer is, that can go much faster. So that can happen as fast as six months because they typically, they are coming in, they know exactly what they want, they’re gonna do their due diligence and then they wanna close the deal. They wanna, they wanna get in and start making money as quickly as possible. And there’s just not as much of the emotional internal transition as there is with an internal purchase.

In all cases, this is gonna be a bank finance. So they’re gonna come in with some money, they’re gonna borrow the rest, and they’re gonna expect there to be an earnout. So if you are selling to an external buyer, part of your purchase price is gonna be an earnout over time. And typically there’s an escalation, which means that if the agency starts to diminish by a certain percentage, if a G R starts to drop, your earnout is gonna drop. It is a very rare deal. You can try and negotiate for it, but most outside buyers will not agree to it that if the agency grows, you make more money. So when we try and do a deal with an external, whether we’re on the buyer or the seller side, we actually try to equal that out by having an escalator that goes up and down.

But for a lot of folks like us and a lot of buyers, they’re like absolutely not.

Also, one of the disadvantages or something to consider with an external sale is that you, even though the sale will be complete fairly quickly, that you will be asked to stay and make sure the transition is successful. And it’s very difficult to go from being an owner to being an employee of your

Agency, of

Your, of your own agency. So you really want to make sure you’re clear on what your job description is and what you are willing and not willing to do for the time period that you’re there. And if you’re going to be held to certain K P I standards, that will influence the earnout as well, that you know you can do it. That you are able to have the, the backing to do it within the agency and understanding exactly what those expectations are and what you’re willing and willing, willing to, and to not do.

And in some cases, they just want you to meet with clients and smooth out over that transition, right? In other cases, they want you to do a job, they want you to show up at eight o’clock, clock in, do a job, take your 30 minutes for lunch, like a regular employee, right? So not only what is the job description, but what are the expectations of your workday, your work week, how much flexibility do you have? How much autonomy do you have? Those are all important conversations to have,

Especially as well as mergers. Not just if we are acquiring right, but the merging of companies, which we’re not talking as much about today, that the clarity of who’s doing what and what the expectations are when you’re combining two companies is so crucial, more so than even any other sort of buying other agency.

For sure. And again, back to sort of multipliers. So for an external sale, remember a lot of the buyers are looking for a bargain. So we’re seeing agencies go for 0.8 to 1.2 times a G I or three to five times ebitda. So it depends on sort of how desperate you are, how willing to negotiate you are, how aggressive the buyer is, who’s sitting next to you at the table, and what they will allow you to agree to or not agree to. So again, there’s, there’s a wide range, but it’s not always as sunny and rosy as it starts out. In fact, it’s never sunny and Rosie as it starts out, as Danielle said earlier, they start nitpicking all the things that aren’t quite right and they go, well, you know what, maybe it’s not a seven times multiplier, maybe it’s a six.

And then pretty soon you’re at five and it keeps sort of deescalating down. But that’s, again, that’s basically what an external sale looks like from a structure point of view.

So when you are selling your agency or, and you’re, if you’re buying the agency, there’s going to be Expenses on both sides of the equation for sure. Starting with the buyer, we have to keep in mind that we need to have a lawyer that is just representing you as the buyer. They’re going to help you create the new entity that’s bind the agency. They will help review with all the documents from the letter of intent to the final purchase agreement, and they negotiate a lot of the de the details within the sale. You’ll also need a C P A or end a tax, we say a tax strategist because during the sale there’s different elements that will a affect the taxes on for both the buyer and the seller.

In any deal, you’re going to try to have that be as as equitable as possible of who gets hit by what taxes. But you need to have a C P A or tax advisor that is working on you for your side as the buyer to be able to give you the information that you need to make good decisions. You’ll also need to have some seed money to put in a new entity’s account and also the money that will be the down payment for the purchase. If you’re doing an S B A loan, they require that, that amount of money to be in your accounts for a minimum of three months before the purchase agreement is signed so that you’re not just moving money around to look like you can afford the agency.

So there’s a, it’s a range depending on where you live, who you’re hiring, but you can expect as a buyer to invest roughly around 50 K to get the deal completed.

That does not include the down payment,

Does not include the down payment. So keep that in mind. Obviously you can have payment terms, it is not, not necessarily gonna come in one lump sum, but keep in mind that those things exist and oftentimes buyers will try to then gain back that money after the purchase of the company. And so there’s ways to mitigate that. But as far as getting into your bottom line and in your pocket, 50 K is a safe bet.

So for example, let’s say Danielle and I were gonna buy an agency, we might lend to the new entity $25,000 of our own personal money to put into the business to finance that lawyer and the C P A and all of that. And then once the agency gets up and going and we own it, we would just then repay that loan back to us. So it’s not typically a permanent personal investment. It’s really more of a, for maybe a year or two you’re gonna loan that business into or that money rather into your business and then take it back. And we’ve seen some people get by with 20 or 25 grand, right? But far better to budget for 50 and only need 30 than to budget for 20 and need 50.

Exactly. And the seller as well will have Expenses. So again, we don’t, you’re not gonna be coming to the table and just getting a check for your agency. You’re going to have to make an investment to, to ensure the sale goes through smoothly. So a consultant coach for both the buyer and seller, which is what Drew and I do for a lot of agencies to help through the transition and to get the deals to where they need to be before they go to the lawyers and the C P A, the seller will also need their own lawyer, their own tax strategist. And there’s also these Expenses of, of oftentimes staffing up before the sale to take over certain roles that will some somewhat be doubled up during a few, some months of that transition depending on what the needs of the agency are.

So having that expectation that there will be Expenses around that and that actually ensures the smooth transition of the agency.

And keep in mind the advantage is the seller is this is not your personal money, right? You’re paying for all of this through the agency, but it’s still money out of, in essence, your pocket, even though it’s being funded by the agency, right? For that final year or so of the, of the transition. Right?

Exactly.

And, and so for an internal sale, you know, you can budget probably anywhere between 75, which is on the really low end to $200,000 of potential profit that you’re gonna have to spend on all of the people who are gonna help you get this done. And including pa, perhaps some employees who are gonna step into the roles of your buyers, right? So your buyers can step into your role.

Seller Expenses, when you’re doing external sale is very much again around the due diligence phase as well. It tends to be a lot higher in the due diligence than an internal sale. Partially you would have an advisor, an advocate, there’s find’s fees and commissions for the, if you have a

Broker Broker, yep,

Sorry, broker, you’ll also, again, neither lawyer, a C P A tax strategist and probably less likely that you’ll have to invest in staffing up before the sale because oftentimes there’ll there that’s not a necessity, but still something to consider depending on your circumstances, so that you will probably invest about 150 to $300,000 plus commission. So again, keep that in mind when you’re right. Doing the bath back of the napkin math.

So with those kind of numbers, you can see why we, when we hear about you getting an email from somebody who’s promising you a 12 or 15 times multiplier, that’s when we clutched our test a little bit. ’cause we know it’s gonna cost you 20 or 30 or $50,000 in due diligence before you get to the point where they’re actually making a real offer. You know, they’re blowing a lot of smoke up your skirt in the beginning and you’re doing all this due diligence and now we’re down to a three times multiplier or a five times multiplier and you’re like, I do the math, I’m better off just keeping the agency. But you have 50 grand in lawyers and c p a fees. So that’s, you can see how that money mounts up very quickly, right?

So you wanna get to a no super fast with the name external if it’s not gonna be the right deal, right? So I know this has been a lengthy conversation and I feel like we just have scratched the surface. Yeah. And this absolutely, this is a complicated deal and it’s complicated not just from a money point of view or a numbers point of view or a timing point of view, but it’s also complicated because there are a lot of human beings involved. And so it’s always gonna be high emotion, high stakes. It’s gonna require more time and more communication than you think. But the better prepared you are, the easier and better it will go. Our best advice to you is do not go it alone.

You need somebody beside you who’s done this before, who will help you see the big picture. They’ll hold your hand, they will talk you off the ledge. And honestly, sometimes you are not gonna show up as your best self. And you need an advisor next to you who’s gonna kind of kick you in the can when you’re being a jerk. Because I promise you, there are moments in time whether you’re the buyer or the seller, where your best self is not gonna show up. And you need somebody you can trust, whether it’s us or somebody else, to help you make good decisions and get through this moment in time, both the smooth sailing and the rough spots. And then maybe at the very beginning you need to understand the end.

And that may be the best advice we can give you is when you know how you want the story to end, it’s much easier to write it that way so that you make sure that it all plays out the way you want it to. That the relationships that matter to you with the buyer or the seller, depending on what side of the table you’re at, are still intact. That you feel proud of the way you handled yourself, that you honored the legacy of the agency you built, or you honored the legacy of the agency that you’re buying and everything the owner did to get it to where it’s at. The more you really think about how do I want, like when I look back on this a year from now or five years from now, how do I wanna feel about what that experience was like and how I showed up in it?

The better you understand that, the better you can write that journey and live through that journey so that you actually can realize the ending that you want. But know that this is complicated stuff and it does require the thought and the introspection of both the buyer and the seller. ’cause this is one of the biggest decisions you’ll ever make, regardless of which side of the table you’re on. So give it the time and attention and respect that it deserves.

Absolutely. Having a nice long runway so that you’re not painted in a corner when you really are ready to exit. The agency allows to have that time to, to write that story and to understand what that, what that vision looks like. And it’s really rewarding to be able to sign the paperwork at the end and feel really good about what you did and what comes next.

Yep. For sure. Alright, this wraps up this lengthy episode of Build a Better Agency. Thanks for hanging with us. Hopefully this was helpful. As you know, Danielle and I are here to be of service, so if anything we said triggered questions on your part or concerns or opportunities that you hadn’t thought about, please reach out. You know how to get ahold of us. We’re happy to, to send an email back or answer a question however we can. That’s our job is to be helpful. So we’re ready to do that before we let you go. Of course we have to thank our friends at White Label who are the presenting sponsor again this year of the podcast. They’ve been with us for years now and we’re so grateful for their support.

They just make it possible for us to hang out with you every week and bring you not only solo cast like this, but amazing guests like the one we’re gonna have next week and the week after that. So huge shout out to our friends at White. Label IQ as I Thanks White Label. Yes, we love them. They are people we’ve known for a really long time. They’re, they’re good human beings. They are born from an agency actually. And so they understand what it’s like to be an agency. What you worry about in terms of profitability when you bring a partner in. So if you’re looking for somebody to do white Label, PPC design or Dev, go to White Label IQ dot com slash mi. If you’ve never worked with them before, they will give you some free hours into your first project just to kind of kick their tires and have that experience.

So really good people, they are the go-to team for many a m I agencies, many podcast listeners, and we couldn’t do it without ’em. So we’re grateful for them. And so as always, we wrap up this episode being grateful for you. Thanks for, thanks for listening every week. Thanks for being with us.

Thanks for letting me join in on the solo cast, always.

Yeah, it’s fun to do it together. Yep. So we’ll be back next week with a guest. And in the meantime, you know how to reach us if you need us. We’ll see you then. Thanks for listening. Thank you.

Come back next week for another episode, designed to help you build a stronger, more stable and sustainable agency. Check out our workshops, coaching and consulting packages, and other professional development

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