Is it profitability above all?
Is profitability your primary immediate objective? Or, is it worth sacrificing short term profits in order to insure long term growth and profitability? Some agency owners believe that it is prudent to maximize profits in the near term because marketing business is so unpredictable. Others take the longer view. What do you believe?
In most cases, an owner would answer this question according to their own objectives and the objectives they have set for their business. Once these two sets of objectives are clear, business owners can evaluate other factors, such as market conditions and competition that will affect the course of action they choose. We are committed to helping owners make more informed personnel and capital investment decisions that affect their short and long-term profitability.
What’s your business worth?
Most agency owners have a good idea of how much their business is worth — to them. Often, their idea of value is at odds with how the Market values their type of agency. So how do we determine who is correct? Well, it depends.
Market valuations vary according to so many variables that an owner would have a difficult time establishing a reasonable value without objective assistance. On the other hand, a more important question is how much is the business worth to him or her? And an equally important question would be, will this value be likely to increase or decrease over time if he or she keeps running the business in the same manner?
In general, the value of a marketing communications company is roughly equal to its Gross Income, provided that the Net Margin is at least 20% of Gross Income. There are additional factors that can increase or decrease the value.
Buy, sell or merge?
One common plan many agency owners share is to build up their business and sell it. Good idea. But, to whom will you sell? And, will there be a buyer ready to buy when you’re ready to sell?
Perhaps a better question to ask is what point in an agency’s life is the right time to sell? Yet another, equally important question is, how much will you be able to sell the business for? We gave you a rough idea of the value in the previous section, yet there are always issues and factors that affect the selling price.
The plan to build up the business before selling makes sense. But, how is the best way to do that? One option would be to acquire another agency. This strategy is sound if it can help you solidify important clients, perhaps win larger ones, increase the volume of profits and expand the quality and quantity of services. And when you are in a narrow niche, making an acquisition helps if it strengthens your position in the niche.
These are all important considerations, but they leave the question of timing unanswered. When is the right time to go to the Market? This is a question that can be answered more objectively from outside the business than from within it.