As an agency owner it almost goes without saying that part of your job is to plan for the long term legacy of your agency.
Being the leader is a lonely job. Reach out and get some help.
As agencies, big and small, continue to navigate this ever evolving industry it begs the question, what exactly is going on out there? And what can you do to improve your agency’s odds of thriving in this chaotic marketing industry?
One key recommendation to any agency owner contemplating their long term future, or any initiative involving mergers, acquisitions or sale, is to know the answers to some basic questions.
Ad Agency Leadership Questions:
1. 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.
- Planning for the future requires agencies to make informed personnel and capital investment decisions that affect their short and long-term profitability.
2. What’s your agency 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.
- Every own must have some idea of their agency’s value, and its long term prospects. Is the net value on the upside? Or have you already passed your prime. Know where you are and focus on extending your value curve long into the future, or have a plan to exit now.
3. 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?
- 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.
Get Some Professional Help!
These are all important considerations, and have driven many agency leaders crazy thinking about them.
If you’re interested in taking your agency to the next level, or just finding a way to get out of this crazy world and get recognized for all your hard work, make sure you reach out and get some professional advice. Now. This support may include setting corporate strategy, documentation, protection of assets, valuation, staffing and more. Leading agencies understand the importance of utilizing someone who has advise hundreds of agencies on the best ways to handle due diligence, overcoming obstacles, seizing on industry trends, and how to maximize timing advantages.
Photo by Ethan Lofton and used under creative commons
