Q: I want to sell my agency and retire in the next couple of years. What steps should I be taking now to prepare my agency for sale at the highest price?
A: The larger the agency, the more steps you need to take to prepare and maximize your sale price.
If your agency is a small one, which I define as one having fewer than $5 million in annual travel sales, then you probably need to do just a few things.
First, make sure that your income statement (also known as profit-and-loss statement) is accurate and clear. Nothing turns off prospective buyers like unclear financial statements.
Second, be sure to maximize revenue by choosing preferred suppliers that pay the highest commissions. Join a host agency, consortium or franchise that has supplier deals that provide well over 10% on cruises, tours and all-inclusives.
Third, maximize revenue by selling those preferred suppliers and expanding your customer base for at least one year before trying to sell your business.
If your agency is midsize (say, between $5 million and $25 million in annual sales) and either leisure- or corporate-oriented, consider taking the aforementioned steps plus several more.
First, try to put your most important groups or corporate accounts under written contracts. Your business will be more attractive to buyers because accounts under contract are more likely to stay put.
Second, consider requiring staff to sign employment or independent contractor agreements with lawful restrictive covenants, such as prohibiting the staff from soliciting or handling your accounts for a year after termination. Even though the contracts will not be automatically assumable by a purchaser of your assets, the mere existence of such contracts will allay buyers' concerns that the employees and clients will leave right after the sale.
Third, refrain from signing any new, long-term contracts with vendors or landlords. If you have Sabre and sign a new five-year contract today, you are probably deterring almost all Travelport or Amadeus users from wanting to consider buying your agency.
Fourth, keep a running list of expenses that benefit you personally and that a mega-agency would not allow a general manager to charge to the business, such as life insurance premiums or car expenses. You can then show the list to prospective buyers that want to know your true profit picture.
If you have a large agency, you need to take all of the foregoing steps, and you should also have at least two years' worth of CPA-prepared financial statements, so that prospective buyers can conduct their due diligence reviews accurately and quickly.
Start keeping internal income statements for the most recent 12 months, as sophisticated buyers look at those results first.
Finally, trim any nonessential staff and other expenses so that you can show a high profit margin.
These steps probably sound like common sense to many readers, but you would be surprised at how many owners sell their businesses without taking them.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].