Turning A Near-Collapse Into $1M Value: This Agency Did It

This agency owner's story of transforming their business from near-failure to a $1 million valuation is essential reading for all business owners. I wanted to share their impressive comeback so you can gather important lessons and practical steps to prepare your own business for a successful exit.

Many business owners grapple with preparing and selling their business for maximum value. This blog post explains the strategies that led to their success. Don't overlook the strategies that could change your business's future.

How To Turn Around A Business in 4 Steps

• Determining the value of the business

• Identifying what increases or decreases the business's value

• Creating a plan to enhance the business's value

• Implementing the plan and evaluating its effectiveness

Let's discuss how this agency owner executed each of these steps.

Determining the Value of the Business

This Texas-based marketing agency assisted individuals and businesses in enhancing their social media presence. They generated nearly $500,000 annually and had a profit of $100,000. As part of our Small Business Selling course, Mary Smith Agency (this a nick name, for confidentiality reasons) we initially valued her business between $270,000 and $330,000.  

Identifying What Increases or Decreases the Business's Value

As part of our Small Business Selling course, we also did an assessment of the agency, identifying key value drivers that made the business more valuable compared to similar businesses:

• Growing Revenue: The agency's revenue increased annually.

• High Profits: The agency retained more of its income than other comparable agencies.

• Longevity: The agency had been operational for over ten years.

• Good Reputation: The agency had numerous satisfied clients who recommended their services to others.

However, there were also factors that decreased the agency's value:

• Heavy Dependence on the Owner: The agency couldn't operate without Mary. “Companies want to buy a business where the owner is out of fulfillment”, exited entrepreneur Nathan confirms.

• Lack of Standard Processes: There were no established procedures or clear job roles.

• Over-reliance on One Client: One client accounted for 40% of their revenue.

• Short-term, One-Off Contracts: The agency didn't have any long-term or recurring contracts to ensure steady income.

Loss of a Major Client Tanks Business's Value

The agency's value plummeted to nearly zero when they lost their largest client and a significant portion of their revenue. This highlighted the risk of relying heavily on a single client and the importance of diversifying income sources.

Steps on How to Save a Struggling Business

To address the issues, Mary developed and implemented a detailed plan. Over the next 18 months, she:

1. Hired More Staff: Despite reduced revenue due to the loss of their largest client, Mary hired additional personnel to manage daily operations, sell their services, and serve clients. This recent blog post explains the team’s impact on valuation.

2. Improved Systems: She implemented automatic invoicing to ensure timely payments.

3. Revised Their Services: She began offering standard packages with transparent pricing and long-term, recurring contracts for consistent income. If you want to know more about how to scale your services beyond you, this links to a recent blog post on how I did it.

Success and a Value of Over $1 Million

The changes were effective. With more clients and improved systems, the agency's value surged to over $1 million. This was due to better financial management, reduced dependence on the owner, and the introduction of scalable services.

Conclusion

This case study underscores the importance of planning and resilience in business. It highlights the need to diversify clientele, enhance efficiency, continue investing in marketing, and reduce the business's dependence on the owner. Mary's story exemplifies how a well-executed exit plan can lead to immense success, even in seemingly dire circumstances.

In summary, this case study demonstrates that adaptability and foresight are crucial in business. It's possible to recover and grow in any situation. By understanding and addressing what makes your business more or less valuable, you can guide your company towards a successful exit. None of these things are particularly difficult, but require awareness, understanding discipline to execute.