Business Sales Agents for the Creative industry?

[Marmottes]

I am sole director of a creative design agency, specializing in events and exhibitions (trade fairs) turning over in the region of £500,000 annually with an expected gross profit for the next financial year estimated to be somewhere in the region of £170,000. Over the last few years we have been growing slowly with turnover and profit growing fairly consistently each year. We have some loyal and key blue chip clients who give us regular work and have a small team of project designers and managers we work closely with, employed on a freelance or project by project basis.

The business has now grown to the extent that for the first time ever, I’m having to turn work away, as we simply don’t have the capacity to deliver new work whilst still retaining the outstanding level of customer service that our clients have come to expect. We could grow and employ people and the money is certainly in the business to be able to do this without too much trouble, however having been working in the industry a number of years I feel it is time, now that the mortgage is paid off, to pursue some of my other life goals instead.

As a business I feel that we’d make a great addition to a similar but larger agency looking to expand their client base, bring in a senior person (me) for a period of time to manage this transition, with the plan for me to exit the business, or perhaps remain as a part time consultant if terms are favorable, after a period of time. For our existing clients it would widen our current offer past just exhibitions and events into areas such as branding, digital media, etc.

Currently I am researching business sales and wondered whether there were any business sales agents or advisors out there that specialized in the design, creative and events industry? Would be useful to sound one out to see what the opportunities are.

 

[barryo]

It sounds as if you're not directly employing people at the moment? Perhaps you use sub-contractors to do the actual work? If so, you won't be selling "the business", you'll be selling your customer book. Looked at from that perspective, it will be a much simpler, cheaper and quicker than selling "the business".

To sell your customer book all you need to do is approach prospective buyers, which will include your competitors as well as others that you identify who would possibly want to add your range of services to their offering. Prospective buyers should be easy to identify and can be approached initially with a simple sale prospectus.

A note of caution; be careful that your identity's concealed until potential buyers have made a positive commitment (i.e paid some money, perhaps into escrow or as a bond) and are bound by a watertight NDA before you give them any access to your customer book. Otherwise you run the risk of them spreading negative rumours about your intention to walk away or, even worse, getting hold of your customer data and using it to win them off you. I've seen both of these things happen before. In one case, it destroyed the seller's business completely in a couple of months because he didn't want to pay what was a paltry amount of money to put proper protection in place. It gave me no pleasure to say "I told you so" when he contacted me in desperation.

 

[Nathan Hill-Haimes]

There are plenty of business brokers around, but I've always found the best way is to make a list of your competition and call them up.

 

[Marmottes]

Thanks Barry, yes that's correct, we don't directly employ anyone, although our project managers are all customer facing, have a good relationship with our clients and could continue to provide the same service to whoever we sell the client base to.

The idea would be for myself (and our freelancers) to transfer across our clients to a new agency with me remaining as consultant for a period of time to assist the process.

In terms of calling up potential businesses, how would we do this ourselves and keep our identity concealed and customer base secure at the same time? Surely this is where an agent comes into things?

 

[The Byre]

You don't have a business, but a place of employment.

 

[barryo]

I've PM'd you.

 

[jim_gold]

You could achieve a far better sale price if you were able to sell the company rather than the customer book.

But at the moment there is just you. And you intend to leave at some point after the handover. Not an overly attractive acquisition prospect.

I would consider employing one or more people to do most or all of the things you do. Get the business to the point where you are really not doing much yourself.

I won't go into the tax implications in detail, but if you do sell the assets only, then you must pay tax on that income (or if it's a company, it must pay corporation tax). Selling the shares allows you various tax reliefs.

Before hunting around for a business broker, you would be well advised to sit down with your accountant and at least examine the various options.

 

[Marmottes]

Thanks Jim, I am planning on selling the business as a going concern, it's a LTD company and what comes with that is the client book. The plan would be for the new owners to also buy me for a period of time which could easily be extended on a consultancy basis if they so wish as part of the deal. Would be planing a share sale and at present I'm the only shareholder. The business currently is profitable and I see no reason why this would not continue in this vein under a new owner. There's the potential for the buyer to gain additional efficiency through non-duplication of accounts, rent, insurance, etc, etc. There would also be some costs for the new owner such as employing someone to do my role. That said I'm fairly expensive for my current company anyway so they might even make some savings here.

I'm sure that there's a possibility for a business with staff in place to sell for more, but for personal reasons I'm not keen to build the business further, let alone the complexities of taking on staff etc and the additional 3-5 years that would probably take. The business has been good to me. It has enabled me to pay of a complete mortgage in just 4 years, and has also set me up with a good pension fund at a relatively young age. I've sacrificed a lot over the last couple of years and feel it's now time to spend a bit more time with friends and family and I don't really have the desire to work extra hard for another 3-5 years for even more money when I'm pretty happy with my current lot really. I still want to work hard of course, I'm still ambitious but I am looking to take a step back from things for a period of time, perhaps working hard for 2-3 days per week going forward rather than the 5-6 days per week its been over the last couple of years.

I have a meeting with our accountant next week after year end so if there's any questions I should be asking then it would be great to hear these.

 

[Marmottes]

Also should add that there's currently a fluctuating amount of between £100k to £150k in cash in the business account at any one time. The business needs very little working capital, probably around £20-£30k tops as we get paid a large percentage of all projects we undertake in advance from our clients. So need to ask what's the best thing to do with this surplus on sale?

 

[barryo]

If you go for an equity rather than a customer book sale, it will be a much more complicated deal for the buyer; hence, their transaction costs will be higher and they're likely to want you to pay them or at least knock them off the agreed price. The reason for this is that they'll have to do much more due diligence than for an asset sale, and they'll also want warranties from you as to any possible contingent liabilities. They'll also want more historic accounting data, which will probably cost you in preparing drilled-down analyses so that they can easily understand the background. And as a business that (seemingly) relies mainly on sub-contract labour, the nature of those contracts will be key.

As for the cash surplus, it depends whether it's advance payments for work in progress or is encumbered in any other way. If it's pure surplus you'll need to take it out as tax-efficiently as possible. Probably by means of dividend.

At the end of the day the best route overall, equity versus asset sale will probably come down to your accountant's advice as to tax efficiency and net transaction costs.

 

[The next Steve Jobs]

Q why bother selling the company?

... it has so little value because it's primarily based upon you and your ability

it would surely be more lucrative to just carry on for another season or two


KEY POINTS

A regular brick and mortar company generating similar income is likley to be worth 10x A 'one man and his network / client list' because it has tangible assets that aren't likley to break or require delicate personal handling during transfer...you clearly understand this.


Look at the 'opportunity cost from the buyers perspective'

Let's say I was a bigger competitor, for 50k a year I could hire a fairly talented person who could build a client book the size of yours in a year....there would be no complications regarding transfer of clients, free lance project workers etc etc

So in that sense your business, your client book is only worth 50k , give or take

Also, if your entire operation vanished overnight your competitors would simply take up the slack .... a few of your clients might wander off to other arenas in search of satisfaction but the bulk of them would look for a similar service to what you provided...and they have more than a month eaten yellow pages to guide them,lol


Things would be different if you had a good friend in a similar industry, the risk of transfer and the motivation of both parties would be strong and unified...your best friend might pay you 250k for your current set up but a competitor, even a non hostile one is likley to shrug their shoulders and just wait for you to evaporate.


I wish I could be more positive, you obviously have some ability, after all you built the business. Alas, it could be tricky to 'sell on' or even give away for free due to the nature of its construction...a house of cards with you as the keystone.

Ps. I had a friend who had built up a similar 'house of cards' type business ... he didnt have much luck selling It!


PLAN B FROM OUTER SPACE

You could possibly 'transfer' the business to a switched on individual who is at a loose end...if you can find them, they take the bait and enjoy the easy ride on offer.

The two of you would work side by side until your new partner was confident holding the reigns.... at which point he writes you a cheque for 200k to 350k perhaps with an ongoing 1% retainer going to you for another 18months, consultancy, good will etc.

The win, the buyer isn't getting a bargain as such but he is getting an easy ride

KEY his opportunity costs (prior to hooking up with you) reads WTF shall I do next

 

[The next Steve Jobs]

Please let us KNOW how the sale goes

...happy to be proved wrong by a stroke of luck and genius on your part

 

[Marmottes]

Thanks Steve, always useful to have another opinion on things and yes have thought about continuing on for another few years, however the sale is also an option I need to investigate. As for paying someone £50k to bring in clients, well perhaps, but having seen various business development people in operation (the good and the bad), that's by no means assured, and would take at least 6-12 months to start bearing fruit. With new clients then normally you're also into pitching for work against their incumbent, a time consuming and costly excersise. It's far easier to continue an existing relationship with an established client with assured profitability, shared understanding, history and knowledge, and a current and future order book from the outset.

 

[The Byre]

You could achieve a far better sale price if you were able to sell the company rather than the customer book.

You may find that the customer book is worth about as much as a bucket of warm spit. The chances are, your competition knows who your customers are and approaches them regularly. They no more need to have some sort of magic list, than a food manufacturer needs to know who the leading 500 supermarket chains and wholesalers are and who the key buyers are for their range.

But at the moment there is just you. And you intend to leave at some point after the handover. Not an overly attractive acquisition prospect.

You are the business. Or as I stated above, you have a job, not a business.

... it has so little value because it's primarily based upon you and your ability, it would surely be more lucrative to just carry on for another season or two

Given that your list of customers is not really worth much, a couple of seasons of trade would bring in a multiple of what you can sell your job for.

We could grow and employ people and the money is certainly in the business to be able to do this without too much trouble, however having been working in the industry a number of years I feel it is time, now that the mortgage is paid off, to pursue some of my other life goals instead.

To do that and at the same time, turn your job into a real business, you have to start employing people, possibly starting with an office manager.

The business has been good to me. It has enabled me to pay of a complete mortgage in just 4 years, and has also set me up with a good pension fund at a relatively young age. I've sacrificed a lot over the last couple of years and feel it's now time to spend a bit more time with friends and family and I don't really have the desire to work extra hard for another 3-5 years for even more money when I'm pretty happy with my current lot really.

I get the distinct impression that someone has been whispering sweet-nothings in your ear about the possible value of your company. "Four times gross profit!" they whisper and like Pavlov's dogs, you started to drool.

"Four times £170 . . ." you muttered and counting the hairs on the back of your hand told you that comes to £680,000. You probably also would like to stress the magic words 'potential for growth' and even 'hitherto unrealised opportunities' which just tells the potential purchaser that you have been holding the company back, which pretty much halves your personal value as a manager.

What the real value is, can easily be calculated - we have to add the cost of employing staff, the cost of restructuring the business and the very obvious fact that many customers will jump ship following a sale. If, when half your customers look elsewhere, your company would be making a loss, then it has a minus value. If your fixed costs are 100% variable with turnover (they never are of course) then my ballpark figure for the true value might just be more than £50,000 - and then again, might not be!

A savvy purchaser would almost certainly insist on certain structures being in place (manager, office manager, etc.) and make the final price dependent on FUTURE profits - over which the purchaser has of course, full control!

Or as Fagin put it "I think I'd better think it out again!"

 

[Marmottes]

Hi and thanks 'The Byre' for your comment. My business (or job as you put it) might be worth nothing to somebody else or it might be worth a lot of money depending on their outlook or circumstances. I'll make that assessment when the time comes. For now though I'd really like to bring the discussion back on track to business sales agents and I'm still inquiring whether there's anyone who knows any agents who would have an in depth knowledge of the design and creative industries? It's an industry that's fairly unique in terms of the type of companies that operate within it and the strategic nature of relationship between agency and client.

 

[The Byre]

OK, point taken! Here - http://ukbusinessbrokers.com/contact-1/

He's dealt with a number of businesses like yours, as well as many other types of on-line ventures.

 

[The next Steve Jobs]

We can only give broad advice here because so many factors are unknown

I think most people can see the current value but see numerous pitfalls during transfer

The factors that eat in to future value , FUD fear, uncertainty, doubt

A biz sales agent might be able to advertise your willingness to sell, float that idea to an ocean of curious tyre kickers but ultimately only you will be able to communicate the true value over an extended conversation/partnership with a 'right minded buyer ... that process might prove exceedingly longwinded tiresome and in terms of sales income become an 'opportunity cost' that is self defeating.

Perhaps an alternative is downscaling 'contract by contract'

Blah blah we have our hands full, willing to transfer x client over at y cost.


Strong business relationships are founded on trust and long term profitable relationships. If I was one of your clients I'd be a bit edgy at being passed on, and perhaps disappointed.

I do apreciate the fact that it seems kind of silly to just wind up and walk away, but the house of cards factor is the deal breaker, some goodly glue is hereby needed

The more pivotal your role in the business the greater the FUD in the eye of the buyer

By not actively structuring the company for 'an easy sell' you have painted yourself in a corner.

It's going to be a challenge ... but you have several viable paths forward



It wouldnt be the first company in the history of the world to plummet in value at the loss of its visionary CEO

 

[Marmottes]

Thanks for the contact, have given Clinton a shout

 

[The Byre]

Good man! Subscribe to his newsletter and read his blog, esp. this bit here -
http://ukbusinessbrokers.com/get-300-per-cent-more-buyers-for-your-business/