5 lessons I learned selling my agency

Chris -

My agency was awesome.

I enjoyed going to work every day, working with my wife every day, and was really proud of our highly skilled team. We had awesome clients and we were growing year on year.

But even though I got so much out of it, I had run my agency for most of my 30s - and I wanted different experiences out of my 40s.

Selling wasn’t my master plan by any means, but it was a nice way to end a great experience - plus give both my staff and clients a good "new home".

I thought it might be interesting to share some of the lessons I learned selling my development agency.

1. Anyone can sell, even small businesses 👨‍💼

I used to think only product businesses could be acquired, and you needed a SaaS bringing in a good MRR in order for the business to actually be worth anything.

If you Google "selling an agency", it's not always positive stories, and it can scare you off with the number of people talking about how hard it is.

But I can tell you first-hand that it's not always as hard as you hear or read about. So if this is something you ever want to do, it’s certainly possible.

You also don’t need to be doing $10M a year in order for another company to acquire yours - there are many reasons why acquisitions and mergers take place, and they are often more about strategy than your bottom line.

2. It’s a slow process 🕓

Selling a business isn't usually quick.

For me, it took around 20 months from initial conversations, to reviewing the contract, to signing the contract. Although we did have a small global pandemic right in the middle that made things take a little longer!

It’s also not a guaranteed process. There are many points along the road where either the buyer or the seller might bail out. Due diligence, contract negotiation, price negotiation, transition agreements. It’s common that deals never go through, even after a lot of time and effort has been spent by both parties.

Seeing friends who had gone through this process (successfully or unsuccessfully), and seeing how long it took - made me wary about even thinking about selling.
I was just too busy running a successful business.

But ultimately that stood in my favour, because I was never desperate to sell, my business was going great, and I knew I didn’t want to get bogged down with lengthy contract negotiations.

Because of this, I approached the whole process very transparently about what would work and what would not work for my wife and I.

So even though it did take a while, the process ran rather smoothly.

3. Simplicity makes things simpler 🧘‍♂️

My wife and I are simple, organised people.

We are minimalists, we track our finances (down to the cent!), don’t like overcomplicating things, and have never taken on any debt. And we built our business in the same way.

These attributes played in our favour when it came to selling:

  • The business structure was simple - my wife and I 50/50
  • Our balance sheet was very clean, and we’d never taken on debt
  • We had very low overheads (staff, rent, and a few monthly SaaS bills)
  • We had no long-term liabilities (we worked from a co-working space)
  • We had a small list of very well-paying clients (as opposed to many low-paying clients)
  • Our clients owned all their code, IP, assets etc
  • All clients were on an ongoing contract (either retainer or support & maintenance)
  • We had very thorough documentation on all our projects
  • We had a lean team of high-performing people

If instead we had 4 business partners, 45 staff members, and 117 clients - the process would have been a lot more complicated for sure.

4. It’s about today, but also the future 🚀

If you’re selling a business, obviously the performance history of your company matters.

Year-on-year growth, low expenses, and high profit are all these are fantastic for your business, but you’re not being acquired solely based on what’s happened historically - but on what the acquisition brings in the future.

In any business, especially a service business - relationships, and stability are key.

If the staff and the clients don’t want to move with the sale, then that’s usually a dealbreaker.

By the time I sold we had 8 large long-term projects and ongoing retainers or support & maintenance contracts with all clients. These were all custom software development projects, that powered their businesses and required ongoing work.

Whilst ongoing contracts are awesome, they are not the only way to show reliable revenue.

A successful marketing funnel and sales pipeline can be a huge asset for the purchasing business, especially if it’s a standard operating process that can scale.

If my agency had a portfolio of 150 marketing websites, no ongoing client contracts, very few updates per year, and no real sales pipeline - it would have been a much harder sell.

You need to be able to prove reliable recurring revenue, even after the acquisition and merger have taken place, and you have left the business.

5. Strategy can be more important than revenue 🤔

Profit is awesome, and your services are awesome. But it’s not always enough for a business to deal with the overhead of acquiring another business.

Acquisitions and mergers are strategic events, and it’s usually a combination of factors that make your business interesting to purchase.

For me, having some well-known brands in our portfolio definitely made a difference. I’m not talking Coca-Cola or Tesla. But companies already known to the potential acquirer can definitely make the purchase more enticing.

Every business has a different long-term strategy, and purchasing a smaller business is often easier and quicker than building up those skills internally.

For example, a no-code agency with a large client in the pharmaceutical industry could be a strategic acquisition for a digital agency wanting to get into no-code and the pharmaceutical space.

Or a custom software agency with a niche in the financial services sector could be a potential acquisition for a large financial services firm, who are wishing to bring a skilled team in-house to work internally.

Or a medium-sized digital agency may want to double in size over the next few years. So purchasing another smaller development company may be the best way to make this happen.

There are countless ways strategy plays a role.
Revenue is great, but the strategy is usually the deciding factor.

You may be happy running your agency for many more years, but even still - it’s always good to think about an exit strategy - one that aligns with your end goal.