A client recently shared: “I want to sell my agency for $1 million in 8 years so I can retire.” He wanted to know if he was on track to get that exit price.
Want more than that? A million dollars doesn’t go as far as it used to, especially after taxes and fees. Other current and prospective clients have mentioned a $5 million target, or $10 million, or $50 million.
If you’re focused on running an Equity agency, let’s look at what it would take to get $1 million, or more. Your target might be closer—or further—than you think. [Last updated: December 2023]
Not planning to sell your agency? Totally fine—you’re probably running a Lifestyle agency. But knowing this info is still helpful if you get an unexpected offer to sell.
What drives the offer amount?
When someone buys your agency, they’re typically buying the agency’s future stream of profits. Higher profits and an in-demand agency = higher selling price. Lower profits and a run-of-the-mill agency = lower selling price.
For independent agencies with less than $10MM in revenue, the usual formula is for acquirers to pay a “multiple” of EBITDA (earnings before interest, taxes, depreciation, and amortization). Ask your accountant about your EBITDA—this might be the bottom line on your Profit & Loss (P&L) Statement, but it may not—it depends on how your accountant set up your P&L, and how you’re paying yourself.
Smaller agencies might get valued based on Seller Discretionary Earnings (SDE). Larger agencies ($10MM+ in revenue) might get valued based on a multiple of revenue.
What’s a normal EBITDA multiple for selling an agency?
It’s all negotiable—but a 4-6X multiple is typical for agencies. That’s via Punctuation, an M&A advisory firm for agencies. Multiples typically assume something like a 3-year average of EBITDA, after adjusting to ensure EBITDA reflects market-rate compensation to the owner(s).
Keep in mind that to get your ideal multiple, you need to get in front of the right acquirer. For more on that, see my article on creating a Dream 100 acquirer list—so you can start building those connections before you need them to pay off.
How to get a million dollars when you sell
With that “multiple of EBITDA” valuation approach in mind, any of these combinations could produce a million-dollar sale price for your agency:
- $1 million in revenue with 20% net profit margin, valued at a 5X multiple
- $1 million in revenue with 33% net profit margin, at 3X multiple
- $2 million in revenue with 25% net profit margin, at 2X multiple
- $5 million in revenue with 20% net profit margin, at 2X multiple
- $10 million in revenue with 10% net profit margin, at 1X multiple
Want to sell for exit for more? Adjust the underlying numbers accordingly. For instance, if you want to sell for $5 million… 5X the underlying EBITDA assumptions in the list above.
If you look on business broker sites like BizBuySell.com and BusinessBroker.net, you’ll see agencies are frequently listed at a 3X+ multiple. If your annual net profits are trending to $500,000, a 3X multiple means a valuation of $1.5 million. Getting your annual net profits to $700,000, that same 3X turns into a valuation of $2.1 million… and a 4X multiple makes it $2.8 million.
Of course, having the right financials is no guarantee that someone will pay that amount. For instance, the acquirer typically wants you to be Optional—both operationally and for business development. If you need to extricate yourself from day-to-day operations, my Agency Leadership Intensive can help.
If you use a business broker to sell your agency—which you probably should, unless a qualified buyer approaches you out of the blue with a reasonable offer—you’ll also pay the broker a “success fee” (commission), typically around 10%. Like paying a real estate agent when you sell your house, this commission reduces your net proceeds from the sale.
The owner typically keeps most of the cash from the business’ bank account—apart from a couple months of operating expenses—so if you have lots of cash, that’ll likely come with you.
Getting a formal agency valuation
These are rough figures. Want a better idea of what you’d sell for? I recommend hiring a valuation expert who specializes in agencies. My go-to is Punctuation (David C. Baker & Jonathan Baker) offers a valuation service specific to agencies. They also offer other agency M&A services.
You could hire any financial consultant to do the valuation, but it’s smarter to hire a specialist who knows the agency industry.
You may find your current valuation is lower than you want. If so, I’m glad to help you create a plan to increase the number—please get in touch.
Question: What will you need to change now to get a million dollars (or more) in the future?
