While an exit strategy is crucial for those looking to sell their firm imminently, Beth Herskovits finds that such plans can help any agency meet benchmarks and benefit the future of everyone in the company.For many independent agency owners, it might seem counterintuitive to spend any significant time planning to leave a business, especially in the early stages after its launch. But this sort of long-term thinking can ensure that agency owners ultimately reap the most equity from their investments, while still protecting their families and employees. A recent survey by StevensGouldPartners, an M&A consulting firm, found that 64% of agency owners do not have formalized exit or succession plans. (Click here) But such strategies are not just for owners who want to sell their businesses or retire. Art Stevens, managing partner at StevensGould, recalls facilitating the sale of an agency for one owner who had died unexpectedly - and who had unintentionally left his wife responsible for overseeing the business. But even barring major life changes, an exit plan ensures that a firm meets benchmarks that could prove critical in the future. Some exit strategies can take a decade or more to implement. In addition, owners must allow time to review potential tax and estate-planning considerations that could make an agency less attractive to a potential buyer or successor, says Brooke Hollis, a principal at Lyons Hollis Associates, a Granby, CT-based financial-consulting firm that specializes in PR firms. For new agency owners, Stevens suggests spending the first few years in business demonstrating a track record. It's a critical time: Most start-up companies fail within the first three years. "If you make it beyond three years, you have a viable asset," he says. "Give your business a few years to show what you can do." After the first few years, however, it's not too early to start looking at options for leaving the business: consult books, surf the web, attend the PRSA's Counselors Academy meetings, and compare notes with other agency owners. At that point, principals should also form a team of advisors, including lawyers, accountants, and financial consultants, familiar with the PR business. Among owners with an exit strategy, the largest percentage (28%) plan to sell their firms, finds the StevensGould study. But owners should be aware that acquisitions are often the exception, not the rule - and they're not for everyone. Stan Bratskeir has been through two acquisitions. Most recently, he sold his New York agency, Bratskeir & Co., which he still heads as president, to Toronto-based MDC Corporation. "My plan wasn't to be acquired, but to make our company stronger," Bratskeir says. "[The sale] offered the dual advantage of exchanging my equity for cash and retaining my independence." Bratskeir stresses the importance of upping the size and profitability of an agency that is being groomed for a sale. He also advises owners to build a second tier of management. "Even during good years, when profits are high, independent operators tend not to focus on the bottom line," Bratskeir says. Agency owners should also consider their key employees when planning an exit strategy, according to Hollis. An acquisition by a larger firm, for instance, can provide employees with advancement opportunities and access to more resources. In an employee stock ownership plan (ESOP), on the other hand, employees become stakeholders in the company's well being. Padilla Speer Beardsley is a firm that pursued an ESOP - first put into motion in 1992. The purchase was completed two years ago, according to CEO Lynn Casey. "If an organization is not ready to share itself with its employees, an ESOP is a difficult decision to make," Casey says. "You have to be willing to open your books. For some companies, it's not a place they want to go." While there are few ESOPs among PR agencies, the strategy was cited by 26% of agency owners who had an exit plan in the StevensGould survey. Rick Gould, also a managing partner at StevensGould, notes that owners should look beyond the obvious routes when planning an exit strategy. Even small shops have some assets - if not in cash, then in knowledge, contacts, and clients - that would be valuable to another company (and not necessarily one in PR) or to a successor. "Every firm has value," Gould says. "No one should ever [plan to] close their doors."
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