Selling your marketing agency for seven figures sounds like the dream for many agency owners, but the reality is a bit more complicated. While seven figures may sound like a huge payday, once you factor in taxes and fees, the final amount can shrink quickly. Still, it’s entirely possible to sell your agency for seven figures if you position it correctly, even if you’re not planning to sell just yet.
Here’s how to prepare your marketing agency for a seven-figure sale, ensuring you get the most out of the deal when the time comes.
1. Understand the Valuation Formula: It’s All About EBITDA
The value of your marketing agency is typically calculated based on a simple formula: 3x EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). In other words, you’ll get roughly three times the amount of your annual EBITDA when selling your business. For example, if your agency’s EBITDA is $340,000 per year, your agency could be worth around $1.02 million.
However, a few factors can influence this multiple. If your business is growing steadily, has a solid client base, and demonstrates future potential, you may even get a higher multiple. On the other hand, if your agency’s growth is stagnant or your financials aren’t in good shape, you might end up with a lower offer.
So, if you’re aiming for a seven-figure sale, focus on growing your agency’s EBITDA while maintaining consistent financial health.
2. Be Prepared for Taxes: Seven Figures Isn’t as Much as It Seems
While selling your agency for seven figures might seem like a life-changing amount, it’s important to remember that taxes will take a substantial bite out of that sum. Depending on your location and how the sale is structured, you could be looking at a tax rate of around 40%.
For instance, if you sell your agency for $1 million, after taxes, you could be left with $600,000 or less. That’s still a good payout, but it’s not the windfall many agency owners envision when they think of a seven-figure sale.
This is why it’s crucial to work with a tax advisor or financial expert who can help you plan for the sale and find ways to minimize your tax liability. Structuring the sale in a tax-efficient manner, such as using installment payments or exploring capital gains tax options, could help you keep more of the money you’ve worked hard to earn.
3. Get Your Financials in Order
One of the most important steps in preparing to sell your agency is getting your financials in order. Buyers want to see clean, accurate, and detailed financial statements that give them a clear picture of your agency’s performance. If your books are disorganized, you could end up spending months stuck in due diligence, which can distract you from running your business.
A long, drawn-out due diligence process can be incredibly stressful, and worse, it can harm your business as you divert time and energy away from day-to-day operations. The key to avoiding this is to have your financials ready and organized from the start.
This means:
- Keeping detailed profit and loss (P&L) statements
- Tracking all business expenses and revenue streams
- Having clear documentation for client contracts, employee payroll, and other major costs
By ensuring your financials are in order well before you begin the selling process, you’ll be able to move through due diligence quickly and smoothly, allowing you to focus on maintaining the health of your business throughout the sale.
4. Position Your Business for an Exit, Even If You’re Not Ready to Sell
Even if selling your agency isn’t on your immediate horizon, it’s smart to always position your business for an exit. Building your agency as if you were going to sell it one day forces you to create a stronger, more valuable business—one that can run without you.
Buyers want to see a business that operates smoothly and can thrive without the founder being deeply involved in day-to-day operations. This means creating strong systems, processes, and a capable leadership team that can carry the agency forward after you step away.
Additionally, always position your agency to be attractive to potential buyers by focusing on:
- Client diversification: Avoid having too much revenue tied to one or two major clients. A well-diversified client base reduces risk and makes your agency more appealing to buyers.
- SOPs and automation: Document your standard operating procedures (SOPs) and automate key parts of your business to improve efficiency. This makes your business easier to manage and more valuable to potential buyers.
- Employee retention: A stable, experienced team is a huge asset to any buyer. If your agency has high employee turnover, it can raise red flags and reduce the agency’s value.
By focusing on these areas, you’ll be prepared for an eventual sale, even if it’s years down the road.
Conclusion: Start Preparing Now for a Profitable Exit
Selling your marketing agency for seven figures is achievable, but it requires careful planning and preparation. By understanding how your agency is valued, keeping your financials in order, and positioning your business for an exit—whether you’re ready to sell or not—you’ll be setting yourself up for success when the time comes.
Remember, the goal is to build a business that is valuable, scalable, and appealing to buyers. Even if you’re not planning to sell in the immediate future, preparing your agency for that possibility will help you run a more efficient, profitable, and sustainable business in the meantime.