Q: In your Legal Briefs column, "Gauging the best time to sell your agency," in the Sept. 12 issue, you stated that the best time to sell is when you have had one year of good financial results and you have taken the necessary steps to prepare your agency for a sale. You have already covered the financial results issues, but what about the necessary steps to prepare your agency for sale?
A: Assuming that you have had -- or by year-end will have -- a good year of profits, here are the steps you should take in order to facilitate the transaction and maximize the selling price.
Generally speaking, the larger the agency, the more you probably need to do to prepare for sale. Conversely, if you have a small agency of just a million or a few million dollars in gross sales, you can probably stop after the first three steps below.
• First and foremost, every agency owner needs to have accurate and clear income statements (also known as profit and loss statements or P&Ls) and balance sheets, collectively called "financial statements." Unless you have a large (i.e., $10 million-plus) agency, you don't need them to be prepared by a CPA.
• Second, you need to be familiar with your financial statements so that you can answer any questions from prospective buyers. Nothing is a bigger turnoff than sellers who cannot answer basic questions such as, "What is your mix of cruises versus hotel sales?" or "What are the long-term liabilities on your balance sheet?"
Fortunately, many or even most travel agencies use the Trams accounting system, which is designed specifically for the retail agency business and produces financial statements in formats that are fairly easy to understand and are well known to industry buyers.
• Third, be sure to maximize revenue by choosing preferred suppliers that pay the highest commissions. Join a host agency or operate using a branch appointment of a large agency that has at least some airline commissions as well as supplier deals that provide well over 10% on cruises, tours and all-inclusives.
• Fourth, try to put your most important groups or corporate accounts under written contracts. This will make your business more attractive to buyers because accounts under contract are more likely to stay put, even if the contracts give the accounts the right to terminate.
• Fifth, 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.
• Sixth, trim any nonessential staff and other expenses so that you can show a high profit margin. This is often the hardest step to take, as many agencies have loyal senior staff, but they may not be contributing to your profits.
• Seventh, if you have a larger agency, train or recruit someone who could take your place in case something bad happens to you or if you want to retire soon after the sale.