All good things come to an end and your involvement with your agency will be no exception. It’s no more avoidable than death or taxes (and will possibly involve at least one of those things). Despite this, many agency leaders never give serious consideration to this inevitable business milestone. They should. Knowing where you want your journey to end is vital to planning how to get there. We avoid it because it sounds hard, but I’ll let you into a secret that makes it a lot easier: You only have three options to choose from: Close the business, Sell the business or Die.
If you consider all of the possible ways your involvement with your agency ends, they boil down to one of those three options. At first look, one of those sounds like the obvious preference, but there is nuance to consider. Let’s look at the three options in detail, getting the most final of options out of the way first.
Die
This might not immediately sound like the most desirable option, but it isn’t necessarily a bad thing (bear with me here!). Dropping unexpectedly and leaving everything in chaos is never good, and is possibly something you should have plans in place to cope with. On the other hand though, owning an agency that someone else runs and continues to make you money throughout your life will sound like a pretty good option to many. Let’s leave contingency planning for another blog and assume we’re talking about that second, more palatable version:
Successful business succession doesn’t just happen, it is something that is planned for. You need a person, or team, in place to run things and for them to be on board with the plan. You also need to remove yourself from the running before the time comes, preferably leaving yourself time to enjoy a long and happy retirement. These things all take money too, so you will likely need to improve the profitability of your business to support the plan. All of this takes effort and a strategic plan to make it happen.
Close the agency
Just like the previous option, deciding to shut up shop can be a good or bad thing. On one hand a business can close because it is no longer sustainable (bad) or even insolvent worse). On the other hand the owners might decide they’ve had their success, made their money and want to walk away enjoying the benefit of entrepreneurs relief on what is left in the business.
That last option only really makes sense for very small agencies where the owner is the main fee earner. It can be a successful end when the owner has historically prioritised profit and planned with this end in mind. In any other situation, it would usually be preferable to sell and top up that retirement fund on the way out.
“Make your money then shut up shop” isn’t a bad plan to have, after all it is the one that most closely resembles a traditional career. It should be a decision that is actively made, rather than the only option you are left with though. When you make this your plan you can take action to make it a success: Prioritising profit over growth, maximising pension contributions and ensuring that you get money out of the business in the most efficient way over the years.
Sell the agency
Scouring press releases and LinkedIn updates for mentions of agency acquisitions and mergers it’s easy to be left with the vision of founders sailing into the sunset on newly purchased superyachts when the deal is done. The truth though is that agency acquisitions involving “significant” sums of cash are far less common that the PR stories would suggest.
Most agencies are not much more than teams of talented people delivering work for uncommitted clients under the leadership of a smart founder or two. It’s a great model for getting work done, but doesn’t create much inherent value. If the founders go, the team and clients often follow, leaving the acquirer with nothing more for their money than a pile of Macbooks and a ping pong table. No surprise, then, that smart buyers value those agencies accordingly.
There are proven ways to create greater value: Strong recurring revenue streams, proprietary tools, methodologies and IP, maximising client retention, achieving consistent growth etc etc. Similarly, there are pitfalls to be avoided that would bring that valuation back down such as over reliance on a few key clients, day to day dependence on the founders and high team churn. Balancing these variables with the need to grow and be operationally efficient is no mean feat and is unlikely to be something that just happens by chance without there being a strategic plan to make it happen.
It’s time to choose a path
All of the desirable options above share one trait: They are far more likely to happen if you deliberately work towards one of them. The business you build knowing that you plan to sell in five years is likely to be very different to one where you want to make your money and walk away. Knowing which you are aiming to do (and preferably when it will happen) is a powerful way to increase the odds of you ending your involvement in a positive way. Fail to make a plan and you risk finding yourself stranded without any good option in reach when you decide you want out.
In conclusion, planning for the end of your involvement with your agency is an essential aspect of running a successful business. By taking a proactive approach and considering your long-term goals, you can create a well-defined path that leads to a smooth and successful transition for both you and your agency. Remember, it’s never too early to start planning for the future; thoughtful decisions made today will pay dividends in the years to come.
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