AGENCY VALUATIONS BY AGENCY EXPERTS. INSIGHTS FOR AGENCY OWNERS. (BY JERRY GIBBONS, PARTNER)

If you're planning to sell all or part of your agency, you would (of course) need to determine its value to establish a sale price. But would you want to have an agency valuation even if you aren’t getting ready to sell?  Well, yes. For a couple of reasons.
 
First, to determine the true value of your agency, you must take a close, critical look at not only financial performance but other key factors which affect the valuation including agency differentiation, quality of clients (reputation, size, tenure, concentration), quality of management team (experience, ability to lead, tenure, collaboration), new business development, creative work, client service, website,  systems/procedures and controls, working environment and culture, growth potential and business risks. 
 
These factors are important not only in determining the value of your agency for a sale tomorrow but also in objectively assessing its overall health right now. Knowing how your agency measures up in these areas will identify those activities, functions and departments which need to be improved to make your agency the best it can be. In today's ferociously competitive and unforgiving environment, shouldn't that be the goal of every agency?
 
Second, your agency is probably your largest financial investment. Knowing the current and potential value of that investment is critical to being able to make the best decisions regarding your and your family’s personal financial future.
 
So maybe today is in fact a very good time to take that close, critical look at the value of your agency.

(Jerry Gibbons has been President/CEO of two agencies bearing his name and President of the San Francisco offices of DDB and N.W. Ayer. He has also been Executive Vice President of the American Association of Advertising Agencies.)

At AGENCY VALUATIONS (www.adagencyvaluations.com), we help agency principals to better understand and effectively use key metrics and other tools to build agency value, identify areas of vulnerability and leverage their strengths. Our three partners have been President of six agencies (and CEO of three), CFO of three more and include a CPA. Collectively, we've developed 30 valuations for a wide range of marketing communications agencies across the United States.

AGENCY VALUATIONS BY AGENCY EXPERTS. INSIGHTS FOR AGENCY OWNERS. (BY STEVE KOSKELA, PARTNER)

As they strive to build a successful and highly valued business, agency owners are typically (and correctly) very focused on how well they're serving their clients, the effectiveness of their new business programs and the strength of their service offerings.
 
However, we know from experience that owners often don't devote enough time and attention to monitoring key financial metrics and circumstances which may have significant impact on their agency's future value.
 
Beyond regular reviews of the basic financial statements, you need to have a better understanding of your agency's true financial condition. This will also help to establish measurable goals for increasing value by concentrating on a few critical indicators. 
 
As just three examples of what you should look at more closely: 1) The adequacy of working capital in relation to monthly operating cash requirements, 2) "Normalizing” net operating earnings by adjusting for one-time extraordinary items or below-market compensation for the agency's principals and 3) Developing a reliable client revenue forecasting routine. These are three of the "Financial best practices" which should all be key elements of your ongoing strategy to build financial strength and market value.

(A highly experienced CPA, Steve Koskela has been CFO of global and regional marketing communications agencies.)

At AGENCY VALUATIONS (www.adagencyvaluations.com), we help agency principals to better understand and use the key metrics and tools for building agency value by identifying areas of financial vulnerability and leveraging  areas of financial strength. Our three partners have been CEOs of six agencies, CFO of three more and include a CPA. Collectively, we've developed 30 valuations for a wide range of marketing communications agencies across the United States.