Carefully Planning Your Exit as Agency Owner is Critically Important to Both You and Your Agency

Preparing the agency owner and team for transition. 

When it’s time to sell the agency, nothing is more important to the owner and to the continued health and long-term success of the firm than having a thorough and completely thought-through exit plan already in place. 

Exit planning is a key ownership activity. It’s a holistic approach to leaving the business on the owner’s terms.

Like any other critical business objective, careful planning is required to ensure a good outcome. As an agency owner, your exit plan should include a comprehensive set of integrated strategies designed to achieve your goals. Your plan is your guide to reaching the best exit result.

What are the key goals of an exit plan?

Based on our experience in helping many owners to successfully exit their agencies, these are the key goals for your exit plan:

1.     Allowing you to leave on your preferred timeline.

2.     Leaving the agency in the hands of your appointed successor.

3.     Delivering to you the amount of money required to maintain your desired lifestyle.

4.     Maintaining your control of the agency throughout the process.

5.     Creating a perception in the marketplace (to clients, prospects, staff and business partners) that the exit process has been strategic and carefully planned.

Begin by identifying your exit objectives.

Your plan’s objectives should identify both the benefits to the owner and the benefits to the organization.

Benefits to the owner include:

• Defines and controls the overall exit planning process.

• Clarifies priorities.

• Facilitates progress by identifying the desired outcomes.

• Focuses energy on the most urgent concerns.

• Motivates and retains key staff.

• Creates the ability to sell the agency.

 Benefits to the organization include:

• Aligns a high-performing and stable senior team around a clear and agreed-upon vision.

• Identifies obstacles to improvement in core business functions and provides a plan for overcoming them.

• Assigns responsibilities and tightly defined roles for each senior leader with aligned accountabilities and incentives.

• Provides stability to both the business as a going concern and also the retention of key talent.

Are you in fact ready to sell? The four areas that need careful assessment.

There are four areas of “Readiness”. Each of these must be fully prepared to ensure the success of the owner’s exit and for the agency’s future to be in the best shape possible.

Owner’s readiness – In short, are you in fact ready to exit?

Organizational readiness – Is the agency fully prepared for this?

Successor and senior team readiness – These people are the agency’s future (and a significant portion of your financial outcome will depend on them). Are they ready?

Continuity readiness – What will be done if something happens to you?

Assessment Area #1 – Owner’s readiness.

As the agency’s owner, there are many important questions which you must carefully think through… and the exit plan must then reflect your answers.

As a starting place, how much wealth do you currently have without the agency’s transition? How much more do you need to maintain (or achieve) your desired lifestyle post-transition?

What’s the value of the agency? Is it enough?

Then you must determine your timing for the transition. When do you want to leave? How long are you willing to wait for full payment? (Please note that we strongly recommend that you begin the exit planning process at least 2-3 years before you’d like to leave the firm.)

Do you have a preferred path for the transition? And how do you know it’s the best choice for you? Options to evaluate include:

• External sale.

• Internal sale. (Can your people afford to buy the agency?)

• Passive ownership.

• ESOP.

There are also significant emotionally-based considerations including if it’s important to you that the agency’s brand name survives and whatever your personal post-agency life plan may be.

So, again, are you ready?

Assessment Area #2 – Organizational readiness.

It’s just as important for the agency to be fully prepared for the transition as it is for the owner. There are many questions that need to the answered.

Does the owner’s exit have an impact on:

• Agency strategy?

• Business development?

• Ability to deliver service offerings?

• The firm’s financing?

Is there an alpha successor already on staff? Does that person want the job? What’s the plan if the answer to either of these questions is “no”?

How can the owner’s relationships, skills and knowledge be replaced or transferred to others?

Further, as the senior team will be required to step up both during and after the transition, what resources will be needed below them? And what will the impact be on:

• Client service delivery?

• Business development?

• Talent recruitment and development?

• Financing and ongoing financial performance?

You also must consider what the future organizational chart (and talent) will look like for the agency to continue as a going concern including:

• Where are the holes?

• How do you fill them?

• How will the agency operate at or above historical levels without you?

Lastly, how stable is the staff if you leave? (Even with the best laid plans, there could be turnover.) Are the most important people locked in with creative compensation/incentive packages?

Assessment Area #3 – Successor and senior team readiness.

You can’t sell your agency (or achieve a premium sales price) if you don’t know who your successor is going to be. You need to have already identified the right person who has the skills, knowledge, temperament and alignment on vision and values.

You also need to have a plan for training and preparing her/him in advance to be ready to fill your role effectively after your exit:

• S/he will probably need coaching to move from being a manager (however senior and capable) to becoming a visionary who can continue to propel the agency forward.

• Formal skill/knowledge training where required.

• Mentoring (especially by you).

 Your senior team will also need considerable care and attention throughout the transition process including:

• What’s their temperament? How do they really feel about their post-transition roles?

• Do they have the skills, knowledge, attitude, vision and values to be effective in those roles?

For positioning the agency to prospective buyers and then actually running the firm after your exit, it’s very important that your top people remain committed throughout the process. Tools for achieving that include offering them more responsibility, minority or phantom equity, a new compensation package or “stay” bonuses.

Assessment Area #4 – Continuity readiness.

Finally, you need to develop written instructions (essentially a plan) for how the firm will be governed if something happens to you:

• Who will be in charge?

• Roles of senior leaders.

• Roles of outside advisors and trustees.

 “What if” insurance also needs to be in place:

• Key person insurance on the owner in case of death or disability (and which pays your estate fair market value for the firm).

• Key person insurance on your successor (which will pay their estate fair market value and provides additional coverage for a likely decrease in FMV).

• In both of these cases, you should also have enough insurance to pay “Stay” bonuses to senior leaders.

Summing it all up.

As you can see, preparing yourself and your agency for your exit is a complicated task. However, it still needs to be done well and with diligence in order for you to exit on your own terms and timing, earn a premium selling price and help to ensure the firm’s future (while maximizing your buyout).

Prosper Group has helped many agency owners reach the four states of readiness outlined above. We have also helped owners to achieve successful outcomes in 20 M&A transactions (involving several different scenarios) during the past year.

We offer this wealth of knowledge and experience to you. Please don’t hesitate to contact us at any time.

We’re here to help you prosper.

Prosper Group exists to help the owners of independent marketing and communications agencies achieve their ambitions and maximize the value of their life’s work.

Our team is comprised of former agency leaders and owners who focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.

To learn more about us, please visit the Services page on this website.