Scaling Service x Liz Jackson MBE: if you want to sell your agency, avoid these common mistakes
If your agency is riddled with risk, don’t expect anyone to buy it
"Probably the hardest thing I've ever done in life was close my business. The most difficult thing. Much worse than going blind."
Today we're talking to Liz Jackson MBE, director at employee-owned M&A specialists BCMS. She’s an entrepreneur at heart, however, she started her first agency at the age of 25 – the same year she went blind - and ran it for 17 years. She was recognised by the newspapers, honoured by the Queen, made it onto television…
"And then I lost the business. There was a perfect storm, and I had no choice but to put the company into voluntary administration. It still exists, it's still doing well, but I couldn't sell it in a way that I would want for any single one of our clients."
There is an emotional cost to a bad ending. "I don't think people who haven't been through that really know what it's like. And I don't think people get enough empathy. If you are someone who takes ultimate responsibility, if you are a leader in the true sense, then you know that ultimately it was your fault. When a business fails, it is the fault of the leader. So that was a really tough thing to come to terms with, personally and professionally."
Helping agency founders exit
So being a director at BCMS, where Liz can draw on her first-hand experiences, and offer genuine advice to fellow entrepreneurs "feels very vocational. Our whole model is about helping owners of companies understand what KPIs move the needle when you come to sell it. We’ll help you answer really big questions. How do you build value in your company? How do you shape that value so it's really attractive? How do you maximise the value when you come to sell? And how do you enjoy it afterwards? What does life look like once you've transacted?"
“Creating a business that will ultimately be attractive to buyers is all about reducing risk.” She highlights some of the key themes agency leaders should focus on as they look to grow their businesses.
First, "there's the ability to forecast your business forward. A lot of agencies can't get an MSA in place, or get onto a preferred suppliers list, or framework agreements. It's about getting clients to value what you do so much that they'll enter into a long-term commitment, so you're not working just on short-term projects. The businesses that achieve the highest values are ones that can credibly forecast the future, and that means dependable, recurring revenues"
How big is too big for a client?
Another key mistake, she says, is to become too reliant on one big client. "The instinct to pull out all the stops for your biggest clients will be strong,” says Liz. “But think like your buyer would. If more than, say, 20% of your revenue is dependent on one customer - then that's clearly a risk. Fundamentally you could lose a lot of revenue overnight if you lose that client."
Who owns your relationships?
The same principle holds if the business is too reliant on one person: you. "Leaders need time to lead,” says Liz, “and work on the business rather than in it. If all your client relationships sit with you, that's another big risk for a buyer. If all big decisions come from you, if all budget sign-offs and all recruitment go through you, if nothing happens without you, then that's not a saleable business. It’s time to decentralise, delegate and develop the people around you. Simply put… you need to build a management team!"
What about the hard numbers?
"If there's one thing I could not stress enough," she says, "it's that you will need to have access to granular financial reporting and management information. Where do you make your money and how?
“We help our clients build a granular forward-focused financial picture of their business, analysing revenue splits, profit margins across service lines and customer types... These are the kinds of metrics a buyer or investor will ultimately need to see."
If you want to sell in five years, here’s what to do today
Then there's the legal side of things: shareholder agreements, employment contracts, client contracts, and so on. "You’ll need to be Due Diligence ready,” says Liz.
“This can be challenging, for sure, and can all take a while to get sorted, especially if there are any red flags. I would really recommend starting all this business housekeeping five years before transaction, to focus the mind. If you're working on stuff now that's not going to materially impact on the bottom line of your business, then there’s an argument it’s a waste of energy. I would recommend every entrepreneur find out what makes their business desirable straight away.
For any founders thinking about selling in the next couple of years, Liz suggests acting (and perhaps talking to BCMS) sooner rather than later. "We’ll help you answer those big questions. What matters in this business? What's going to move the EBITDA multiple, what KPIs should you be measuring? "
What’s your number?
Everybody's ambitions are different, and Liz offers a refreshing way of looking at life post sale, and the opportunities a transaction brings "So much of our clients’ identities is wrapped up in being a business owner, so we try to help them think beyond the deal.
“You want to buy a vineyard in Kent. Okay, what else? You want to put your kids through private school. Okay, fantastic. You want to make a big contribution and create a foundation. Brilliant. Anything else? And so that starts to look like a, say, £10 million exit, and that then becomes the goal. We can work backwards from there. What does the business look like now? What does it need to look like? Right there, you've got the gap."
Again, sses the importance of defining a roadmap ahead. “It's a bit like a growth goal, really,” adds Liz. “What's the goal, what's the reality, what are the options, and what will you do? Then you pull all that together into a long-term strategic plan."
A lot of the time, in one way or another, that plan can involve staying in the business world in some capacity. "There are some people who start again, the serial entrepreneurs, who can replicate their success over and over again. But most of our clients build a business and it's their life's work.
“Then they sell and they want to give back: they've learned a lot through the process of scaling and exiting and they want to help other people and guide them on their journeys, too. At BCMS, we’ve built a network of former clients - the Fellows – who are on hand to share their insights with our new and potential clients. After all, who better to tell you what it’s really like to sell than someone who’s been there, done that and got the T-shirt!”
And if you haven't done it, you don't know it. "It's a bit like if you've got kids. When you have children you join a neonatal group, and there's this sense that only the people in your group understand what it's like. There's the same sense: if you haven't sold a business before, you just don't know what you don't know. We can tell you what's ahead, but it really makes a difference when a Fellow does. Because the feelings, the emotions in the transaction, they're incredibly important. Some support and advice goes a long way."