Are You Ready to Cash Out?
I was talking with David C. Baker yesterday about the high amount of webshops that are for sale right now. I’ve been in the digital services space for over 20 years and there has never been anything like this in our industry. He’s seeing the same surge and we dug into some of the challenges owners are facing. Should they sell? How do they determine their value? What are the first steps in the process? This level of interest with a lack of experience in selling a business means many of us have to be careful.
I’m committed to serving digital agencies and in complete transparency, I’m a little worried. It’s too easy to hear what we want to right now. A big payday, a quick sale, and a fresh start free of all the hell we’ve dealt with the last two years. But in speaking with those who have been through the process and those considering it, I’ve put together some thoughts on selling your company. So keep scrolling fearless reader!
So ya wanna sell your shop?
I get it. I tried to sell my shop at one point and in my eagerness I made a huge mistake. I trusted someone who said all the right things. In the end it cost me money, friendships and hurt my family. The money sucked but the friendships and personal toll on my loved ones I still regret to this day. So when you read this know that is the experience of the person sending you these insights. I may be just a little jaded. So let’s start with why you want to sell.
Why do you want to sell your agency?
If you’re like most owners you didn’t have an exit strategy when you got started. It either seemed like the next logical step in your career or a leap of faith. Regardless the idea of how you’d leave is usually less than a fleeting thought. And for my “never sell” friends, there’s still a day when you won’t be able to run your shop… so what then? Close it down?
The big financial windfall!
If you’re looking to cash out and think this is the best time in the history of digital services, you may be right. But it’s also what everyone else is thinking. So while we hear the stories of the companies that sell for 12x, most I talk to are getting a valuation of 3x-7x and selling for that or less.
Stopping the pain
When times are good, it’s kind of amazing to run a digital shop. But when they aren’t it can be excruciating. And if you’re thinking you can walk away with a bag of cash free and clear, you’re probably not gonna get what you’re expecting. First, if your company is hard to run it’s probably going to be because there are fundamental problems. Problems that will come to light during due diligence. Second, this will lower that windfall and require you to stay running the agency for awhile longer.
You got a great offer
Now here’s a great reason! But we have to ask by whom. I was recently talking with an owner who was approached by a large advertising agency that didn’t have a digital offering. (Yep, they’re still out there.) He knew them and they knew him. They saw the value in what his shop would mean to them immediately. And the money was enough for him to say let’s move forward. So if it’s an individual business that sees value in what you can offer them, let’s do this!
A broker called
If it’s the usual story, then you were approached by a broker who “consistently gets their clients 10x.” These companies are a lot like realtors who look at selling as a numbers game. They are reaching out to you and hundreds of others with the same pitch and normally no concept of your situation. And they want to get you on the conveyor belt quickly. Yes, they get a percentage of the sale so it’s in their best interest to get you the most money they can. But, they’re also going to charge you a monthly fee upwards of $5,000/month and a minimum 4-month engagement during which time you can’t engage in other opportunities.
In fairness, there are great brokers too who treat their customers with respect and do right by them. I've talked with a couple I would hire if I had it to do over again.
It’s time to transition out
Either you’re burned out or maybe it’s time to retire. This may be related to “stopping the pain”, so scroll up for a refresher. But being done or wanting to retire is very different from having to escape from your job.
Depending on the company you’ve built you may think about selling to one or more people on your team. These deals can be very successful and also reward your top folks. The way the company works is well understood among all parties and a level of trust should already exist. And buying you out over time can make it easy for everyone.
Lots of reasons
Selling is very personal so I won’t act like I can capture all the reasons in this newsletter. Just ask yourself if it feels like a good reason or a bad reason. Are you trying to reward yourself and your team -or- are you running away as fast as you can because this sucks. Are you excited or anxious? And definitely be wary of anyone who promises you the sun and the stars.
More next week
Wow. I guess I'm really invested in this topic. I was just getting started. Next week we'll dive into how to prepare to sell your shop as well as the pros and cons.