Advertising and marketing play an important role in South Africa’s consumer industry. There have been a few companies that have made a name for themselves by using locally targeted copy and authentic ideas to communicate with their audiences.
Digital marketing in South Africa has increased at a rate of 35%, with 40% of the population (15 million people) using social media on their mobile phones, which opens the playing field for targeted advertising. With potential areas of growth in the advertising and marketing industry, entrepreneurs could be more likely to consider buying a business in this sector.
This article outlines the importance of planning your exit strategy while also keeping a firm grip on making sure the agency continues to run smoothly and profitably. There are guidelines on how to find a buyer, what aspects to consider when valuing a service business and the benefits of hiring a broker.
Plan the sale of your agency at least a year in advance, this will give you time to prepare your accounts, address any staffing issues, find a broker and solicitor to facilitate the sale proceedings. If you plan to act alone, research the sale process and refine your negotiation skills.
You will need to arrange a valuation to sell your business. A commercial valuer will determine how much demand there is within the marketplace, what other similar businesses are for sale, and how much your business could be worth to a potential buyer?
Due to the nature of the trade, advertising is a low asset business and marketing is a low margin industry, so finding a buyer to take over an established company may be difficult as they’re likely to have their own creative aspirations, values and targets.
Your client list, referrals and repeat contracts are all important assets for your agency; will you be including your wealth of contacts within the sale? Or are you planning to take your clientele with you? This will affect the asking price and the amount of interest you receive.
Finding potential buyers
A business broker will market the sale of your business, and many come with a valuable list of contacts that can speed up the selling process. A broker will work on commission, so they also have a vested interest in selling the business for the highest price possible.
Do not underestimate your own network of contacts; after years of operating in the advertising and marketing sector, you will have built up a valuable list of connections. Sometimes all it takes is speaking to the right person at the right time to strike a deal.
To keep potential buyers interested, you should have all the necessary documentation and accounts to hand and respond quickly to emails. Arrange a phone call or meet buyers in person to give them a lasting impression, as they may have emailed numerous vendors.
Due to the nature of the business, how you advertise and market the sale of your company will reflect on your abilities in the sector. Conferences and networking events are great spots to scout potential buyers, with word-of-mouth advertising one of the most effective methods.
Valuing your business
It can be tricky to value a service business; unlike a bricks-and-mortar enterprise, there are no tangible assets. Advertising and marketing firms can only achieve financial growth – taking on more clients – by making larger losses – hiring more freelancers and increasing costs.
To establish how successful your advertising and marketing business is, you need to offer a repeatable sales formula that potential buyers can benefit from. Your reputation, brand identity and portfolio of client campaigns will also enhance your business valuation.
The agency will be valued higher if you have ongoing retainer contracts in place, where you charge the client a monthly fee over a long-term contract, typically around 12 to 18 months. This will be more appealing as opposed to a company made up of small, one-off projects.
Don’t let the ball drop
Many sellers make the fatal mistake of concentrating all their efforts on their exit strategy, they forget the importance of making sure the business continues to run effectively and profitably throughout the negotiation and sale proceedings.
Hiring professionals to manage the sale proceedings will help you to anticipate every possible risk and outcome before you sign a deal. It also means you can spend time running the business but be sure to keep in regular contact with your broker, solicitor, or lawyer.
Don’t celebrate too early; until you have gone through completion a buyer can always pull out of a sale at the last moment. Selling a business can take between six months to a couple of years; during this time, you must keep your agency thriving and your profit margins high.