In the current business climate agency owners and top managers must prioritize like nobody’s business. And the top priority in a hypercompetitive marketplace is making sure your firm’s valuation is at a maximum.
As the brand creates goodwill, goodwill creates value. But how many agency owners know the inherent value of their firm? There is a great deal of misinformation in the marketplace regarding PR firm valuations, such as that a firm’s value is based on a multiple of top- line revenue. Not so. Every valuation is different.
While having a thorough understanding of your firm’s value is seldom a bad idea, there are a number of specific circumstances when it is particularly beneficial to get an accurate reading of your PR firm’s valuation. For agency owners with an eye on an exit strategy, proper valuations are crucial and should be done well before you are thinking of selling your firm. Here are several items to keep in mind.
1. Potential Sale. When contemplating putting your PR firm on the market, knowing how much your firm is worth can help you tremendously when determining an asking price for your business and deciding how much you will accept from a buyer.
2. Potential Merger of Two or More Firms. A firm valuation is a valuable resource to have on hand when considering the merger of multiple firms. Again, knowing the value of your firm will help to ensure that a fair and reasonable transaction takes place should the firm merge with another PR firm.
3. Potential Growth. Having a comprehensive firm valuation can help greatly with making strategic business decisions on a day-to-day basis. It can also provide valuable information and insight when large and small opportunities for growth come along.
4. Partner Split-Up. Understanding the value of your firm is imperative when firm partners are splitting up and dividing assets. To ensure that negotiations are fair and reasonable, knowing your firm’s worth is a must.
5. Partner Buyout. In order to ensure a fair transaction takes place when a partner buyout takes place, knowing a firm’s value is key.
6. Partner Buy In. When adding new partners to the firm, knowing your company’s worth is necessary in order to ensure that partners have appropriate and fair fiduciary responsibility within the organization.
7. Divorce. Whether a divorce is amicable or not, knowing the worth of your organization is a safe bet when you go into negotiations. Understanding how much the business you worked hard to build is worth can help ensure that a fair divorce settlement is reached.
8. Estate Planning. When organizing your estate and creating a succession plan for your business, it’s important to have an accurate business valuation on hand. This will help you with tax planning and assist you in determining who should ultimately inherit your financial interest in the firm. Likewise, if your family members are beneficiaries of your estate it will protect them to know how the firm is valued in the event of your untimely demise.
Valuations vary within industries and even more so within business specialties. The size, location(s) and specialties of your firm will impact its value. Many believe a Wall Street model is applicable for PR agencies. It is not. The valuation of PR agencies is a specialty, so be sure to check out the education, experience and reputation of the individual conducting the valuation.
What do you think of our list? Anything you think we’re missing? Please let us know.
Sign up for our email newsletter, Inside Edge…Business Strategy for PR, Media & Creative Service Agencies