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Pestronk Mark
Q: In the September 12 issue of “Measuring the Best Time to Sell Your Agency,” in your Legal Briefing column, you stated that the best time to sell is a year after you have achieved good financial results and taken the necessary steps to prepare your agency for sale. You’ve already covered the financial implications, but what about the steps necessary to prepare your agency for sale?
A: Assuming you’ve had — or will have — a profitable year at the end of the year, here are the steps you should take to facilitate the transaction and maximize the sale price.
In general, the larger the size of the agency, the more you may have to do to prepare for the sale. Conversely, if you have a small agency with 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 should maintain accurate and transparent income statements (also known as profit and loss statements or P&Ls) and balance sheets, collectively referred to as “financial statements.” Unless you have a large (ie, $10 million-plus) agency, you don’t need to be CPA-trained.
• Second, you need to know your financial statements well enough to answer any questions from buyers. Like “What is your cruise and hotel sales mix?” There is nothing better than sellers who cannot answer such basic questions. or “What are the long-term liabilities on your balance sheet?”
Fortunately, many or most travel agencies use the Tram accounting system, which is designed specifically for the retail agency business and provides financial statements that are easy to understand and familiar to industry buyers.
• Third, make sure you maximize your income by choosing preferred suppliers who pay the highest commissions. Join a host agency or work through a branch appointment of a larger agency that has at least some airline commissions plus more than 10% on cruises, tours and all-inclusive supplier deals.
• Fourth, try to put your most important group or corporate accounts into a written contract. Although the contracts give the right to terminate the account, accounts under contract are more likely to last longer, making your business more attractive to buyers.
• Fifth, avoid signing any new long-term contracts with vendors or owners. If you have Saber and signed a new five-year contract today, you’re probably dissuading all Travelport or Amadeus users from considering buying your agency.
• Sixth, cut any non-essential personnel and other expenses to show higher profit margins. Many agencies have loyal senior staff but they may not contribute to your profits.
• Seventh, if you have a large agency, train or hire someone to take your place if something bad happens to you or you want to retire after the sale.
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