Beyond Selling Your Agency - Creative Ways to Plan Your Succession

Hey everybody and welcome to this week's Agency Accelerator Podcast. Now on today's podcast we are discussing the future of your agency and specifically succession planning. What exactly does that mean? What are your options and when and how should you start planning for it? All these questions and more are going to be answered by my guest, Christine Nicholson, who's been helping agencies for over 30 years build a business that's less dependent on them. So ultimately they can execute a succession plan.

I'm Rob Da Costa and this is the Agency Accelerator Podcast. As someone who has stood in your shoes, having started, grown and sold my own agency, I know just how it feels in the ups and downs of agency life. So this podcast aims to ease your journey just a little by sharing mine and my guests experiences and advice as you navigate your way to growing a profitable, sustainable and enjoyable business.

Now, succession means more than just potentially selling your agency, as you'll find out. So welcome to the show, Christine, and can you start off by giving us a quick potted history as to what led you to your current role?

Hi. Well, first of all, thanks for having me on the show and I've listened to so many of your past episodes which are absolutely excellent actually. Me in 30 seconds. I left school with nothing, which meant that actually there was this whole load of opportunity for me and I have been very seen opportunities and just run towards them because what's the worst thing that can happen? Don't like it, Walk away. And over that year, over the years, I've tried most things. I've been in the military. I qualified as an accountant in my early 30s, which is late for an accountant. And the first job I had was cutting my teeth on selling a business that the owners no longer wanted. The next generation didn't want to come in. Four generations of family had been running it and it meant that I had this big ball of mess that me and a couple of other people in the team slowly bundled into value packages and sold them. And I thought my God, this makes such a difference. And frankly then moved on to doing that for the last. Well, it's been more than 20 years doing specifically that and, and in the meantime running my own businesses as well. And I've done all sorts of things. So yeah.

Great. So I love to feel the fear and do it anyway. There's we should do. I, I recently climbed. Well last week I climbed Mount Snowden. I've just recorded a podcast episode on it and if they were ever feel the fear and do it anyway, that was it because it was much more of a challenge than I thought it would be. Anyway, can we start off by defining what we mean by having a succession plan and what options agency owners have for exiting or transitioning from their business, and maybe give a few pros and cons of each option as well?

Yeah, sure. So, actually, what I'd like to start by saying is something really quite extreme, which is we are all going to leave our businesses one way or the other. It might not be in a way that you like, but nobody's immortal. If someone is, I'd like to go into business with you, but nobody is ever going to stay with their business ever, forever. So a good succession plan is one that starts like today, best started yesterday, and even better started the day you started your business. Because at some point you are going to leave your business. And a lot of business owners leave their business when something unexpected happens to them. So I always call them the four Ds of the business owner. Apocalypse, death, disease, disability and divorce. These are things that come and happen to you. You don't necessarily plan for them and they can literally scythe you off at the knees and they are the destroyers of business value. So a good succession plan is starting to think about, if I wasn't here, how would my business keep running? Because it really isn't complicated. But it does take a leap of faith because all of a sudden you're actually going to start having to trust other people to do the things that you do, and nobody's ever going to do it the same as you. And God forbid, they might even do it better. There's certainly people around who can do it more efficiently. And then you can sit in the role of shareholder. Because if you're a business owner, that's what you are, you're a shareholder. And if you own shares in Shell, you wouldn't be going and interfering with their operations. So start thinking about yourself as the shareholder of your business. And now how can your business run on rails? So, so actually, succession planning is literally just thinking about, if I take one key person out my business, how would I replace that person? How would my business work without that? And invariably in SMEs, that key decision maker is the business owner. So how can you now start delegating decision making? Because we then move. I'm sorry.

No, sorry, I'm interrupting you. I just say you're singing off the same hymn shit as me, which is great. Kristin, carry on.

Yeah, well, I always say if you can't take more than a day off, then you need a succession plan because you haven't even started unconsciously thinking about it. If you can't take a week off without taking your phone with you, then actually your business is worth a lot less than you might think. So if you can't take a day off, your business is worthless. If you can't take a week off, it's worth a lot less than you might think and it's going to be harder to leave. And if you think that your agency may be the source of income from your family if one of the D's happen to you, so let's forget divorce for a second. But you know, if you become unable to work in your business, then there's a double whammy here because your family is not going to get that income. Plus your business isn't actually going to be worth anything. And typically when a business owner is unable to work in their business for a long period of time, that business is likely to be insolvent within 12 months. And these are just the harsh realities.

It's such a good way of looking at it, even though it's a negative way. But to say to yourself very honestly, like if you're an agency owner and soul searching, can I take a day off? Can I take a week off? Will the business keep going? What happens if One of those four Ds happens to me is a really sobering thought and I think one that people just don't think about enough because they're too busy stuck on, as I call it, the client service hamster wheel of doom. Delivering the day to day services and being pulled in 50 directions and never having time to plan. It's interesting. After this podcast interview I've got a group call with my group coaching program and we are doing off Q4 planning. And for some of them this time the hour they spend with me might be the only time they actually spend working on their agency. So it's so important that we, we figure that one out. I think you sort of start to answer my next question in a way which is like at what stage should a small to medium sized agency owner be thinking about this? I think you sort of started answering that already. Really?

I can answer it in I think two or three words. Your first employee, literally your first employee. And if you start thinking about what is it that you are doing on a daily basis that could be done by someone else and it actually empowering the people that work for you. Because if you think about it, most business owners have gone and worked, they've worked in some kind of corporate environment. I mean My first job was in a bank. I'm never going back there.

And I'm never going back there.

And we all start businesses because we want to make a difference and we want to make a change and even if that change is actually to ourselves. So if you remember that when you first started work or when you were working in a job that you might have actually enjoyed at the beginning, you went to work every day to do a good job. You didn't get out of bed and go, I think I'm going to go and do a rubbish job today. You go, I am going to do the best I can do today. Well, your employees are the same and the only thing holding them back invariably is you. And look, I know it in my own business, I'm the only person who delivers anything in my business. But I still got support staff. And once I got over myself and realized that I didn't need to do all the marketing, which pushed me into this feast and famine thing because get loads of clients wouldn't do any marketing. Clients would finish the projects, they'd have to do marketing. Now my marketing is trundling along because it's consistent, so I don't have to worry about that anymore. But I had to get out of my own way, even though I know this stuff and I have known it for a long time. So I know that mentally this can be hard. And I know it's your baby. Well, I'm going to dispel that myth really quickly. It ain't no baby. Your business is a bunch of legal paperwork. It is not your baby. Your children are your babies. Your business is a mechanism for you to earn so some income and maybe make some capital gain on the effort and investment that you've done over the years. And it's also a mechanism for you to employ other people to do all the jobs that you're doing better than you.

So can you give us some. Can you give us. Listen, I completely agree with everything you're saying and I hope people are being inspired by this. I've been challenging myself recently to get more work off my plate to my team. And it is a mindset thing because you think, oh, no, it's quicker to do it myself. I won't do it as well as me and all that silly stories we tell ourselves that are just stories, they're not facts. But could you give us some practical steps someone might take to start making this change? What would be the sort of first two or three things they should actually do?

The first thing, I always get everybody to do and it doesn't matter where you are in the organization and usually this will give you back a good few hours a week. There are three jobs in any business. Getting and keeping customers, staying legal and making getting and keeping customers more efficient. That's it. Those are the three things. So if you actually look at everything that you are going to do today or everything that you did yesterday and you highlighted them so there's four colours. So are you getting and keeping customers, are you staying legal or are you making that more efficient? And the fourth thing is stuff I need to stop doing right now because it's not adding any value and usually that stuff I need to stop doing. If you question everything that you do, there is a load of stuff that you will be doing that is because we've always done that and particularly in your employees will be really good at you, give them this challenge and go, what can we stop doing? And you will be amazed that they'll come up with these, with suggestions of well, I keep doing this, but it's like I produce this report and it goes into a black hole. I'll give you an example of how I discovered this in one of the jobs I did when I was qualifying as an accountant. My job as a junior accountant was to produce the management accounts. So all the numbers were actually produced by what we call grown up accountants. And then my job was to pull all the information together and put it into a report. And when I first started, that report had over pages and I used to spend the thing collating the information, putting it in a ring binder pre Internet days, then putting it in an envelope and then sending it to everyone. And I realized that no one was reading these things. So I started randomly just pulling missing bits out of the report because if someone actually observed I would just say oops, my bad, I'd get caught once. Anyway, all of a sudden six months go by and the first person who noticed that this report was missing stuff was the guy in the post room who said is there something missing in this because the postage is cheaper? Like literally nobody else noticed but the post guy because the postage was cheaper. So go figure.

Yeah. And we've all got something like that. It's a good. I often talk to people about than their notional hourly rate. And what I mean by that is what? Not what you're selling your clients, but what is an hour of your time worth? And if you're doing tasks that are worth less than that hourly rate, then you shouldn't be doing it. So you then need to think about how do I delegate it, ditch it, defer it or automate it. So yeah, that's good. Now let's just sort of move this conversation on. I think a lot of times when I talk to agencies, and especially in the early years, they've got this aspiration to sell their agency one day. And I often kind of, kind of say, hold your horses, you know, because selling might not be the right thing for you to do as part of an succession plan. So could you just kind of, do you, do you see that as well? And what advice would you give about the options that someone has when it comes to that ultimate utopian day when they start working in their business every day?

Well, one of the things is stopping working in your business is very different from selling it because you can actually, if you have a self managed business, you can be the shareholder and actually and if your ego really wants you to be involved, you can become the chairman and mentor and guide the people who are actually running your business. And one of my clients has just done that recently and he said, you know, I can't believe it. He said, I'm living the dream because I'm now doing, I'm really enjoying my business. So one of the things is getting out of your business on a day to day is very different from selling it. Getting out of your business on a day to day makes it easier to sell, makes it easier to not sell, but actually the sale process is easier if you're not in the weeds. And then of the selling it actually getting the capital value of your business out of the business into your pocket. There are literally 100 ways to skin that cat. And as an agency, one of the things that is one of the options that's truly uniquely available to you is an employee ownership trust. Because employee ownership trusts work really well when your business is really dependent on people and services. And the great thing for the business owner is there's massive tax benefits. Now tax is not the reason. So if you think about it, tax would be the tail and your business would be the dog. We don't want the tax tail wagging the dog, we want the dog wagging the tax tail. But it's a really good option for particularly smaller agencies that may not be attractive because they don't have the volume. They may not be attractive to as an acquisition. But again, you can only do an EOT if you have got a succession plan in place. Because ultimately the ownership is going to go be held in trust for the employees and then the trust then pays you the value of those shares and it is 100% tax free, no income tax, no capital gains tax. Very, very attractive. But that's one extreme. Every method of exiting your business requires a succession plan. Literally the better your succession plan, the more ingrained it is in the culture of your business. The more your business is going to be worth, the more attractive it is going to be for any potential buyer, whether it's a trade buyer looking to merge your business into theirs, or whether it's something like an investment buyer. So either vc, which is venture capital, private equity, again, both of those will really only look at kind of bigger, bigger agencies or your agency if it fills a gap in their portfolio. One of the key things that I really want to get across to people is there are three reasons why somebody acquires a business. They're acquiring customers. So you've got the customer base that they want to get into. They're buying capacity, that is they do what you do. And they know that the fastest way to grow their business is just to buy your business. Because now you've got the economies of scale. So there's customers capacity and then there's capability. So it could be another business that once your capability, your specialism, your ability to do things and they don't have that in house and rather than build it from scratch, they're actually going to take you and just literally slot you into their business.

So when you start, just to interject there, just to say, my personal experience of this is when I sold my agency, it was the capability, the reason why we got acquired, because we got bought by a large US agency that didn't have the marketing skills that our agents, so they kind of dismantled our brand immediately but plugged in that capability into their business. So that definitely hit the third of those three reasons why someone buys a business.

And I think it's when you're, if you're actively looking for a bio, you need to be thinking along those three lines. I mean somebody may actually just go, actually I've always wanted to run an agency. Don't want to build one from scratch. They'll take you as a business owner out and transplant themselves in. Happens it's not as common as you might think. And usually when that happens, they've never run an agency themselves before. They've maybe worked in an agency, possibly even in a senior position, but they've never been a shareholder before. And that is likely to result in you having to stick around for a bit. And the better your succession plan and the less you have to Work in your business, the quicker you are going to get your money and be free when you sell your business. Because I can't express this enough either. There is nothing more miserable than going back to being an employee. It is an exercise in torture. So everybody thinks, oh, I can cope with a year or two years of an earn out. Well, just remember that you sticking around usually involves some kind of money. And in my experience about 80% of business owners that are in earnouts literally walk away from the money. They go, it's not this, this is so much pain, it is not worth me sticking around for that. And the biggest earn out I've ever seen anybody walk away from was walking away from 20 million because it literally doesn't work.

I just want to concur with you because that's exactly what happened to ours. I think we got tied into a two year earn out with eight quarterly targets and I had a business partner, he hated it so much he left after a year which kind of screwed me over a bit. And I always, I always liken it to my two year prison sentence because it was not a fun experience. But I learned a lot, I learned a lot of things about larger businesses and how not to run them and all the politics and bureaucracy that I hadn't had in my business. I think one of the fantasies so many people have, they start their agency and they go, yeah, I want to sell it one day and they've got this idea that they're going to sell their agency for millions of pounds and they're going to walk away straight away. And so the point Christine made about having a succession plan which extricates you from the business before you try to sell, for example, is super crucial if you don't want to be tied in. Because let's face it, if you're a service based business, where is the value in that business? Well, it's in the customers, it's in a bit of brand equity, but it's predominantly in the people. And the people predominantly means you if you're the leader, that you're involved with your fingers in every pie, excuse me. So you have to get out, educate yourself as quickly as possible. On that note, another question I get asked that you're going to get asked all the time, that's probably a bit frustrating for you, but I'm going to ask it anyway because I know our listeners is how do I value my agency?

The answer to that is definitely, how long is a piece of string? It's the same answer. Although there are some key things so your buyer will value your agency in their method and you can get a ballpark figure by looking at your. If you've got recurring revenue automatically that will give you a bit of a lift in your valuation. So if you've got regular contracts, so the length of your contracts and the revenue that's coming in, it will stipulate the kind of level of the valuation method that you can use. Because there's literally hundreds of valuation methods. Now I do a lot of valuations and I do them on the basis of I use a tool that uses AI, that actually looks at the whole industry, whichever industry sector you're in. Mostly valuation is based on EBIT or ebitda which is earnings before interest, tax, depreciation and amortization. And actually what that's really doing is roughly translated as how much cash do I produce? Because any buyer is only going to be interested in how much money am I going to put in and when am I going to get the return on my investment. So if you can start thinking like a buyer, then your EBITDA or your how much cash you produce, positive cash flow that you produce is a good start. It's the basis of, of valuation and size matters. So the smaller you are will be the smaller the multiple, which is, it's a long, long science about multiple. But usually what happens is the buyer will apply a number times your EBITDA and the smaller you are, the, the smaller that that multiple number is going to be. And if your EBITDA is over a million, that puts you into a very different scale of valuation, opens you actually up to a different market of buyer. And if your EBITDA is over two and a half million in a year, I mean that, that's a sizable agency. So and that puts you in a, again it's a different level of buyer. The number of buyers for somebody like that is massive million less. So less than a million. Then it's a very different, very, very different proposition. But a rule of thumb that we start with is depending on your size, the multiple number, the X factor times your cash generation is usually a good way to, of calculating your value.

Yeah, it's interesting, isn't it? Because accountants often give very one dimensional numbers like 1 times revenue or 5 times profit or whatever. But of course it's going to vary and without kind of banging the drum, if you've got a good succession plan in place that you've been executing for a while before you come to this sale, then that multiple is going to be higher because you would have focused on putting scalable systems and processes in, you'll have focused on putting the right team in place, you'll have focused on shoring up your customer base, you'll have focused on profit, you'll have focused on extricating yourself from the day to day. And all of those things collectively will add to that scaling that X factor number when you come to sell. So if you, you know, like I said, I think a lot of people have this fantasy of, you know, building a business for a few years, someone coming out of thin air, approaching them to buy them for millions of pounds and giving them the cash and walking away. And of course that, well, it almost never, if, if not never actually happens. And I guess one question I would always ask people, if they say to me, especially in the early days of their agency, if they said to me, oh, Rob, you know, my goal is to sell my business one day, I would always ask them why.

Yes.

I don't think they thought about why. I think there's a bit of ego attached to this, isn't there? It's like I'm building this thing that's mine and someone's gonna stroke my ego by saying they're going to offer me a load of money for it. So sometimes, if we can explore the reason why, that might actually change, change the plans. Have you got any other tips or mistakes that you see people making when it comes to putting their succession plan and then looking for a buyer or looking to step away from the day to day?

I think the big mistake is people making unrealistic valuation, having unrealistic valuation ideas about their business. So if you want to get it valued, do go and get it valued. There's lots of people out there, don't pay thousands of pounds. It shouldn't be. It should be a relatively cheap, quick and easy way to get it done. And then ultimately it's all about getting the right people doing the right things at the right time for the right reason, following your goals. So for the right goals. So if you haven't articulated the goals and they don't know what the reason is and they don't know the impact of what they do on someone else, and it's not transparent. You may not have the right people, you might have people that you started with and they've been loyal, so you're being loyal to them. I'm a big fan of loyalty, don't get me wrong. But sometimes you gotta let people cut loose so that they can go, and if they're a startup guy, cut them loose. To go and do another startup because the things that got you from startup to here are not the people necessarily that will get you to where you want to go. But start off with the big question is why? And have some goals and then once you can articulate those goals, you can start really working on your succession plan.

Yeah, I guess a good message from this whole conversation for our listeners is to make sure you've got a plan. You need a roadmap of where your agency is going and you need to make sure all of your team about are excited to go on that journey with you and also excited about the destination. So that's one thing we need. Otherwise what happens is the world happens to us and we get pulled in 50 directions depending on kind of things that happen. And that's not. That leads to stress because you feel like you're out of control. So have a plan for your agency and then ultimately have a succession plan as well that's sort of aligned or part of that plan so that you are focusing very early on about how can I be less involved. I think the other thing is to acknowledge, Christine, is that entrepreneurs who start a business will get bored if they're doing the same thing they were doing on day one in year five. And so that's another good reason for changing your role. And you know, I've run a workshop that was called Are youe the CEO of youf Agency? And it looked at the, I don't know, five or six different roles that people play in an agency from the CEO and the chairman and the non exec, right the way down to, you know, the underpaid employee and you know, agency owners end up playing all those roles and more often than not the lower level role. So we want to really be moving our role up. Could go on talking about this for ages. I know there's good nuggets in this, but I'm conscious of time. So let me ask you the question that I ask everybody. If you could go back in time and give your younger self just starting out in business one piece of advice, what would it be?

Don't stop believing because you've got this.

And well, that's very succinct. And if you said that to your younger self, would you, would your younger self listen to you?

Yeah, and probably, probably not. Imposter syndrome was a big challenge for me. Still is actually, but it was a, it was a. People like me with no qualifications don't do things like this is what I used to tell myself. And then I'd have A bit of success. And, you know, my first business went skyrocketed and I didn't know that that wasn't normal. So it was great until I realized that that wasn't normal and then the doubts started setting in. So. But yeah, you can do it. And anybody can do anything that they set their mind to, set a goal and then think what needs to happen for me to step towards that goal. You take one step at a time. Don't stop believing, just keep doing it.

Great, great advice. That's why I kept telling myself, climbing snowdon is put one foot in front of the other and then you get to the top of the mountain. Great, great advice and one that we should all acknowledge. And I've done. I've recorded some podcasts on imposter syndrome before because, let's face it, we all have it. And it's much more about how we deal with that relationship, with that voice than it is trying to say, no, I don't suffer from it. Because I think even the most successful people in the world suffer from it. They just have a healthy relationship with it. Now, if people wanted to find out more about you, Christine, or reach out to you, where would they go?

So if you want to find out how exit ready you are, how your succession plan is, then I have a quiz@getexiteready.co.uk and anybody can go and do that. It's completely free and you get a little report afterwards. My website is actually just opening a new website, which is christine nicholson.co.uk and you can find my book Sell it, which is all the steps about selling, including succession planning. And you can find that on Amazon. Just look up Sell it and my name and you'll see my other books there as well.

Great. I'll put a link in the show notes to all three of those and encourage everybody to go and take that quiz because you get a better sense of where you're at, I guess. Listen, thank you so much for your time today. Really useful. I've written down loads of notes of nuggets that I've got from this, so I know our listeners will as well. And thank you so much for giving up your time and sharing your wisdom with our listeners.

Thank you so much for having me as a guest. You've been a wonderful host.

Ra.