Building a Sellable Business
Many agency owners treat their firm as a lifestyle business, a high-paying job rather than an asset, focusing on immediate client delivery and cash flow. They only prepare for a sale when they are burned out, which is the worst time to sell. Bottom line: a business ready to be sold is a better business to own.
I recently joined Kurt Schmidt on the Schmidt List podcast to discuss strategies to shift from working in the business to working on the business. In our conversation, we moved beyond theoretical valuation tactics to the real operational realities that actually drive multiples and preserve sanity.
Who is Albert Banks and What Does He Do?
[00:00] Kurt Schmidt: Hello, everyone, and welcome to the show. Thanks for joining me. I just want to take a moment to introduce my new friend, Albert Banks. Albert, how are you doing today?
Albert Banks: I'm doing wonderful. Thank you.
Kurt Schmidt: I'm so glad that you're here because I am excited to learn a lot from you today. You've got some information that not a lot of people have. Tell me about the work that you do and who you work with.
Albert Banks: I guess I'm a recovering agency owner. I owned my own company for a little over two decades. I started as a computer engineer and then grew into running the business for the most part—the sexy stuff: finance, operations, IT, office, legal. I learned a lot. I went through a merger about seven years ago and ultimately a sale about three years ago. Now I'm out helping other service firms with their businesses rather than my own, covering some of the same things around operational excellence, finance, how to have a great employee experience, and potentially looking at an exit and what that might be like. I typically work with small to mid-sized service-based businesses. Agencies are key, often working with the founder or CEO and general leadership suite.
Should You Run Your Agency Like You're Going to Sell It?
[02:15] Kurt Schmidt: That's really cool. In my experience with agency owners, this is usually the last job they ever want to have. They don't really have any plans to sell, or the whole reason they're building the business is to sell. I rarely run into a middle ground there. What has been your experience?
Albert Banks: I think that's right. When we first started, we didn't even know we could sell such a thing that we were creating. That's how naive we were. You certainly see people anywhere from that end of the spectrum to those who are very much ready to exit. I try to find people somewhere in between, where there's room to improve your business whether you're going to sell it ultimately or continue to run it, and you enjoy your time while you're doing that.
Kurt Schmidt: It's something I coach my agency clients on. If we do broach that subject, I don't really spend as much time on the finance side as you do, but if it does come up, it's definitely something where you should run your business like you are going to sell it. I think that's a healthy way to have accountability towards excellence and building a safe space. With the agency that we exited, we didn't really have any plans to sell, but we treated it as such. We didn't have debt, and if there ever was debt, we got rid of it as fast as possible. We kept the books as clean as possible. We made sure there were partners, and we had pretty ironclad contracts in place between us that talked about what would happen if one exited. There were a lot of contingencies that were taken care of as well, but most of it was just because we were following good business practices. In your experience getting ready to sell your company or broaching the idea, is that where you start? Where do you start with people? Do you start immediately talking about EBITDA, or what do we do?
Albert Banks: No, absolutely not. Most people who can be an entrepreneur are unique. Often they say they're unemployable. The ones that are successful are risk takers. They've built a company in their own image. I typically want to understand what they want, because it is their business. Do you want to run this for 20 years and bring home income? Or do you have five years left in the tank and you want to sell it? Understanding the dynamics between partners, if there are multiple, and really understanding these individuals and what they're trying to get out of it is the starting point. That's ultimately what's going to drive it at the end of the day. I also share that it's a challenge. There are low odds that you're going to sell—maybe 1 to 2%. If you're well organized and prepared, maybe that rises to 20 or 25%. So just being realistic about what it would take to ever even get to that point.
Sometimes you'll see partners that are frustrated. They're overloaded in one area, too involved in the business, or too separated from something because it's been a lifestyle. It's been their baby. Getting them to look at it like an asset a little bit more, that this is a real business, you'll be ultimately happier if you run it that way. There are lots of different things we want to go through. I agree with you: run it like you're going to sell it, even if you're not. In our early days, so much of it was chasing revenue and trying to make payroll. That led us to take bad clients or misaligned projects. As we matured, we realized this has got to be a profitable business. If we're going to grow, we have to be able to grow profitably. We dropped clients, repositioned at different points in the agency, and updated our ICP. Having that discipline allowed us to have books that looked good regardless of whether we were selling. In the interim, that meant profit sharing with our team and incentivizing our folks that were part of that journey with us. Ultimately, when we did sell, there wasn't a lot we had to do because we had a business we could sell.
Kurt Schmidt: That makes sense. I really understand that journey you're talking about because I meet some agency owners early in their journey, and they're very much running a business out of their parents' basement, even though they have Nike as a client. It's really interesting because there is a bit of imposter syndrome—and I hate to overuse that term—where I see so many agencies have this fear of becoming corporate. It's this boogeyman that they've come up with, that if they have too much process, or if they involve lawyers, or if they get a CFO, or God forbid they get HR, they have become corporate. Nobody can describe to me what corporate means other than maybe micromanagement. But what I do see is that as some of these owners mature and seek out help, they will join a Vistage or some other leadership group. Once they're paired up with other business owners that are not in the agency business, they see the concerns those people have, and I see a dramatic change happen. They realize they should really do this or do that. Is there a typical journey that you've seen?
What is Operational Hygiene and Why Does It Matter?
[06:30] Albert Banks: I think there are natural stages, in particular for agencies, when they outgrow that basement mentality. I literally worked in a basement with my first partner until we reached that point of stability and started to grow. You reach a certain size and it's time to scale. At each of these inflection points, a level of maturity needs to happen. I call it operational hygiene. It's about running a good business. How it relates to the sale is that it's defensible. You have the evidence and the information needed when it comes time for that. I always look at it as security and protection. As owners, we're responsible for all of our team members and our clients. Having contracts buttoned up, IP covered, and clean financials is crucial. I always said if you don't hear from ops and finance, things are going well. You probably don't want to hear from us. If we're running it well, that's great, and then it's defensible.
When you get into a sale and due diligence, you're under a microscope, and all of those things come out. When we sold, you're getting requests for hundreds of documents—every one of your client MSAs, SOWs, employee agreements, leases. They want all kinds of specific detail, measurement, and calculation going back years. Honestly, that wasn't a huge lift for me. It took a lot of time, but we already had these systems in place. We were already tracking those things, and maybe there were just tweaks to how we needed to present it. We were able to continue our growth and hit our margins while going through this really big distraction. If we weren't buttoned up, it would have been very challenging for me and the team. We could have taken a haircut on the value of the business. They could have seen a disorganized and risky group and therefore not been willing to pay what they ultimately did. In the near term, if you're not selling, it's a responsibility, and it's sort of growing up and reaching those middle stages of your organization. Ultimately, it will pay off if you ever do sell.
How Do You Calculate the Valuation of an Agency?
[10:45] Kurt Schmidt: I want to talk about the elephant in the room: valuation. Just like a homeowner selling a house always thinks it's worth more than it is, businesses are no different. They always overvalue what they have. What is the process to understand and set expectations? Maybe not to come up with an exact number, because maybe you don't know a number until somebody gives you one. Is there a process or things I could be doing to get an idea of what that might look like?
Albert Banks: For sure. Some of it is just fundamentally understanding the math behind how a service business is valued. It's not based on revenue; it's based on EBITDA. You need to run a profitable and scalable system. I didn't know that when I first started. I was thinking about revenue and growth, not margin. Once you understand that, it starts to change how you look at your business. Start with your EBITDA and understand that it's a multiple. That multiple scales with your size. The larger you are, the larger that multiple can be. Not that you have to grow if that's not something you want to do; you can run a very profitable company at the size you feel comfortable. It's simple math.
Then it's avoiding risks—client concentration, employee attrition, risks within your contracts. Do you have sticky clients and repeatable work, or do you have a lot of turnover? Are you more project-based or time and materials versus retainers or long-term engagements? Do you have positioning that's defensible and makes you unique in the market? Do you have a sales engine, whether inbound or outbound, that is sustainable? Once you start understanding how the math works and the factors that could ding you or work in your favor, they're almost all the same things that go into running a good business. I thought my company was worth way more when I first started out, until I understood the math. It was fairly straightforward after that. There is a little bit of subjectivity depending on the buyer and demand, but it actually can be pretty straightforward.
Why Do Buyers Acquire Agencies?
[14:20] Kurt Schmidt: A lot of the clients I work with, one of the things I help them with is building a better outbound engine, because a lot of agencies are built off of referrals and don't really have a way to build outbound. Part of the conversation is, exactly as you said, to help stabilize and forecast in order to understand those numbers better, and to make them look more attractive. I've experienced a few different reasons why somebody wants to buy an agency. I've seen people buy because of the client list—they want to roll your clients into their larger business. I've seen them buy for the employees. I've also seen buyers who want the revenue, but that almost feels more rare. It's not usually somebody coming in saying, 'You've got a really profitable business, I want to buy it and run it the way you've been running it.' Usually, I've seen people say, 'I see a real opportunity here, but it's a little dusty and could use some love. If I roll it into my bigger process and system, I could streamline this and make a bunch of money.' What has been your experience, Albert?
Albert Banks: All of those scenarios you described are out there. Usually, it's a multiple of those factors, and the buyer has a priority list. Maybe somebody is very much attracted to the type of services you provide because it's complementary to what they currently do, and they see an opportunity to diversify or gain additional clients. At the same time, they're going to want to see good numbers, a new business engine, and a good team.
The flip side to that is, what is the person who's selling looking for? You need to look at these potential buyers and their motivations. Does that jive with what you want your end game to look like? You have to find a match between your priorities and theirs. If it's really a numbers thing for them, and you're all about the numbers, great. That's a good pairing. If you're more focused on wanting your second-in-command to lead and have a career, but the buyer is going to turn around and sell again in three years so that future doesn't exist, you have to consider if it's a good fit. Ultimately, these are service businesses. You're buying the people. We can't forget that. If your buyer doesn't understand that, there could be challenges. If you're creating a situation where your people don't want to stay, inevitably your clients will leave, and that will not be a good purchase at the end of the day. Finding folks that truly understand that as your buyer is really important.
How Do You Know if a Potential Buyer is Serious?
[18:00] Kurt Schmidt: While I was running my agency, every couple of months somebody would ask if I was interested in selling via email or LinkedIn DM. How do you know if somebody is serious or worth following up with? What questions should I ask, or what activities could I do on my end to validate that?
Albert Banks: You're probably in one of two camps. If you're not interested in selling, take the meeting and learn everything you can. You need to understand the process and talk to people to hear what their motivations are. Why are people attracted to your company? That's always helpful information. If you're in the other camp and might be interested in selling, you need to be more deliberate. You could vet them offline, see if they're real, or talk to peers if they're a large enough name. But really, you need to understand their goals. Why are they interested in you? What is the attraction and the strategy behind it?
One of the biggest things is: do they have the money? It is a transaction. You literally ask, 'How are you funding this?' Are they getting an SBA loan? Is it self-funded? Are they expecting proceeds from you over the earn-out? That gives you an understanding of their maturity, their seriousness, and if it's even a valid consideration. Sometimes it's a vibe check, too, getting to understand them, especially in person. Those are the top things I would look at when you start having real conversations. But take every meeting that seems legitimate so you can learn.
How Do You Align Your Future Vision and Company Culture During a Sale?
[22:15] Kurt Schmidt: Going back to where you were talking about thinking about where you want to end up. In private equity, or with giant firms like Accenture or Deloitte gobbling up agencies, I've seen contracts where the founder has to stay on for two or three years as part of the purchase price. Are those the things you were alluding to earlier?
Albert Banks: For sure. We were fortunate enough that we made the decision to sell. We went to market and sought somebody to buy us rather than just responding to knocks on the door. With that came a really intimate conversation with myself, my partner, and ultimately our second-in-command about what that future would look like. Our founder was interested to see what his next adventure might be, but he was done operating the business. I didn't want to be number one again because I had done that in my prior agency before the merger. I knew what I wanted and didn't want, focusing on integration and operations, whereas our second-in-command was interested in a leadership position.
We were able to craft the story—and I don't mean a falsehood, but a literal plan for how things would work in the future. When we went to the buyers, they could react to the future that we individually wanted versus them dictating something different. We could eliminate folks. If we had a private equity-backed buyer who was going to bring in their own leadership, that just totally didn't fit with where we wanted to go. They disqualified themselves. You get into earn-outs. How long do you want to be tied down? If somebody wants to be out day one, you're probably still going to have an earn-out and a non-compete. You have to see if these restrictions fit with your desired outcome. Things are negotiable, but sometimes it's about finding the right buyer. We had a buyer who was fine with a really short earn-out. There may be others that want a full three-year earn-out. It truly is a matter of fit for what you want for your future.
Kurt Schmidt: The idea of what you want for your future makes me think about what the team wants. If you've got a sizable organization, there's a culture already pre-built in there. I've seen times where people take two businesses and cultures and try to put them together, and they bounce off each other like opposing magnets. What's your advice for people? You got together with your partners in leadership and talked about it, but at some point, you had to broach the subject with the rest of the organization. Did you wait until there was an offer and then broach it?
Albert Banks: We did it in phases. We brought in a core group of leadership when it was pretty much real and done, and then a next senior layer right before the announcement. Where it really helped us with culture is that it was a deliberate effort. Buyers look at staff turnover as a flag, just like client turnover. In our deal, part of the earn-out was around employee retention. Because we weren't originally building to sell, we built a situation with career frameworks, salary bands, culture committees, and initiatives to make it a great place to work. We wanted to keep our team and wanted them to influence how we went about things. When it came time to sell, they had enough trust in us as owners to give us the benefit of the doubt that this was a good decision. We didn't have much turnover. Some of that was because not a lot changed immediately, but a big credit goes to having that foundation established before a change took place.
But you're right, ultimately when two cultures come together, it's challenging. We had to admit to ourselves that it would work for some people and not for others. Some people would see it as an opportunity; some would want to move on. That's just the reality of any kind of change.
Kurt Schmidt: I think that's really smart. Back to your point about the vibe check, I remember a small private equity place reached out to us about a project, and it turned out they wanted a much larger integration with all the companies they were part of. They proposed buying us so we could work on all these things for their companies. I was clear with them: 'Hire us for a project first. Let's do one for those companies and see how that goes.' They didn't want to do that. They just wanted to talk about the purchase. That was a big red flag to me about their seriousness versus their cheapness. I thought it would be obvious that we should date before getting married. They weren't interested, so it ended up not working. They just kept asking for a number, and I told them I didn't have one.
Albert Banks: There really is something to that. One of my clients who has been tremendously successful with their acquisitions has worked with the other companies multiple times before it ever gets to the point of a sale. There's already a clear cultural connection and trust, which makes integration even easier. In our case, if I recall right, we were going to take over one of their clients regardless of whether we actually closed the transaction. They felt comfortable enough with us as a partner to hand off a client. I think that said a lot about what they saw in our value. Those signals are pretty clear. If someone is purely transactional and the timing has to be a certain way, you decide whether that's a flag for you. If you're ready to get out quickly, maybe you go for it. But if you have time and a well-run business, going through that dating period and finding the right fit is much preferable.
How Do You Go to Market and Prepare for Post-Merger Integration?
[27:50] Kurt Schmidt: I would say from my experience, the faster you want those things to happen, probably the lower the price will end up being.
Albert Banks: Right.
Kurt Schmidt: Last couple of questions here, Albert. How do you find somebody who wants to buy you? In my experience, it's often people within your network that maybe introduce you to interested buyers. But let's say my network isn't that strong and I want to start going down this road. Where do you start? How do you go to market with your business?
Albert Banks: We hired an advisor—someone familiar with our space who had the network and could guide us along the journey. They teach you how the process goes, make those connections, and run you through a process. If you're seeking buyers, that's the way to do it more formally. They take a percentage of the deal and want success, but you probably only do this once in your life. When you sell your house, would you sell it yourself or get a real estate agent? There's certainly something to having a professional who can educate you and refer you to experts focused on tax and legal aspects. Having a team when you go to sell is ideal, even if you are approached. You shouldn't do it completely on your own.
Kurt Schmidt: Always have a professional help you. Don't bring Cousin Eddie. I've seen some people bring in Cousin Eddie, and that's not really going to work. What are your final thoughts? Any parts we didn't cover that you want business owners listening to consider?
Albert Banks: My last thought—which unfortunately is many people's last thought—is the integration. Whether you're joining another organization or you are the acquirer, integration needs to happen. There are way too many examples of the value you were trying to create in an acquisition completely falling apart because integration didn't happen or didn't go well. If you wait until the sale is done to start thinking about it, you're in for a world of hurt. Planning for that well in advance and having conversations with the buyer or seller about what it looks like is really important.
If you're not going to sell, design your organization in a way where it's plug-and-play. If you were to go from QuickBooks to NetSuite, how dramatic would that be for your organization? It's just a tool, but how big a lift would that be? You can practice integration if you're not going to sell, because you'll go through stages of maturity where you switch from Pipedrive to HubSpot or Salesforce. Think about how big a lift that actually is and if you're prepared for it. Use things like bringing on new hires, forming new departments, or adding new service offerings as practice for the type of change management that integration will require. It requires planning and advocates. I didn't really use the term change management until integration, but I realized I've been doing it for decades without calling it that. Getting practice at that will help you run your business and go through growth, and it is very valuable if you ever sell or make an acquisition.
Kurt Schmidt: Amazing. Albert, you are a fountain of information, and I thank you so much for taking the time to join me. If I want to reach out and learn more about how you're helping people do this every single day, where do I go?
Albert Banks: It's really easy. You can find me on LinkedIn as Albert Banks, or check out the website Apertus.co. I'm happy to chat with people. I'm in the stage of life where I want to help people succeed and get over the hurdles I faced when I was younger, so I'm happy to connect with anybody.
Kurt Schmidt: Anybody listening, even if you are just sort of sale-curious, Albert is a great guy to reach out to with some initial questions. He's not a heavy sales tactic guy; he's here to help out. Albert, again, thanks for taking the time out of your busy schedule to join me. I really appreciate the conversation.
Albert Banks: Absolutely. Thanks for having me, Kurt.
