Agency principals are often deeply engaged in the operations of the business. Managing client relationships, participating in new business pitches and managing financial performance are all in a day’s work for the modern-day agency owner. While exciting, adding the possibility of a sale requires additional focus for management teams to prioritize and execute.

When contemplating a sale, preparedness matters. This process, known as “exit readiness,” involves a thorough evaluation and fine-tuning of various aspects of your agency. From ensuring financial accuracy to streamlining operations and understanding your core market, exit readiness is a multifaceted endeavor. It can not only maximize the value of your agency in the eyes of potential buyers but also align the sale with your personal and professional objectives.

While there are many components to preparing your agency for a transaction, below are some of the essential considerations that pave the way for a successful transition.

1. Financial Health Assessment: Buyers want transparency and accuracy to get a full financial picture of the business. This includes audited financial statements, showcasing a strong balance sheet, reliable cash flow and mature financial management. A three-year view will often include tax returns to validate earnings.
   
   
2. Operational Efficiency: Demonstrating a mature operating model provides confidence that the agency has a well-managed and scalable model. Here, you can get credit for things like a strong labor utilization rate, workflow and project management, account growth and expansion, proven customer acquisition models and integrated technology stacks.
   
   
3. Legal and Compliance Check: While legal review is a later stage due diligence requirement, it’s important to ensure all legal documents and compliance matters are in order from the start. This includes intellectual property rights, open or resolved legal disputes, client contracts, and employment agreements. A clear legal standing reduces risks for buyers.
   
   
4. Strong Management Team: A firm’s identity is often associated with the principal; for potential buyers, it’s critical to demonstrate a deep bench of management, beyond the CEO. Showing the depth of the team and others who have command of core functions in the business (eg, business development and creative delivery) help alleviate any “owner-dependency” concerns that limit the future value of the agency.
   
   
5. Client and Revenue Diversification: Large accounts can win favor with buyers, but a handful of disproportionately large accounts are a risk. If any of them leave, so does the revenue associated with them. A diversified portfolio acts as an insurance policy for client retention and stable revenue streams.
   
   
6. Articulating a Clear Vision and Strategy: Buyers invest in strong management teams who share a vision and direction. A well-documented and tangible business plan will help show prospective buyers what’s possible with the existing team and resources, and give confidence that the agency can execute against it.
   
   
7. Culture and People: In addition to demonstrating depth beyond the owner(s), buyers are interested in your overarching human capital strategy. This includes a defined organizational chart, cultural norms and values, recruitment philosophy and professional development philosophies that reward and retain high performers.
   
   
8. Defining Ownership Goals and Exit Strategy: As an agency owner, you’ve earned the right to define your ideal transaction, both in structure and in your future involvement.  Some operators want a deal that allows them to remain active and be rewarded for creating additional value in the agency, while others seek a full exit to focus on their next pursuit or season. Defining your objectives upfront will arm you for conversations with buyers who are determining your role, value and future involvement.
   

There are many components to preparing your exit planning; some are intrinsic in nature, while others require the guidance of a trusted and seasoned advisor. Giving advanced attention to these elements will not only build a stronger business, but will also help you define and manage the detailed transaction process that follows.