Mark Pestronk
Q: As a baby boomer, I would like to retire soon, so I'm thinking about selling my agency. I have never sold a business before, so I am quite in the dark about how to go about it. What is the first step? What comes next?
A: I have observed that there are two kinds of travel agency owners: travel people and business people. Travel people love travel, and they are experts at advising clients, but I've found they do not always have a good grasp of the economics of their business.
So if you are a travel person, your first step should be to make sure that your company's financials (income statement and balance sheet) are familiar to you and understandable and that you're able to answer questions about them from prospective buyers. Nothing turns off a buyer like a seller who cannot answer basic questions about their travel agency's economics.
Most travel agencies appear to have the Trams back-office system, which produces very clear and relevant financial information. If you use Trams you are fortunate because your financials will be easy for a prospective buyer to understand.
For a travel person, the second step is to figure out how to maximize profits for at least one year. Buyers generally evaluate businesses using a multiple of profits, so the higher your profits are, the higher your selling price will be.
You can maximize revenue by joining a consortium, franchise or host agency that has better commission deals than you do. You can cut expenses various ways, such as giving up your lease and working from home, letting unproductive personnel go and cutting out unnecessary subscriptions.
You only have to make these changes for a year or so, as sophisticated buyers really only look at the most recent year's results. Everything else is either skewed by the pandemic or too remote.
Your third step is to find a buyer. In order of the likelihood of success, the best ways to find a prospective buyer would be:
- A trusted colleague from your consortium, franchise or other business group.
- Your host agency, as most hosts are always looking for a profitable acquisition.
- A referral from a broker that specializes in travel agencies, such as Innovative Travel Acquisitions.
- A business owner in your community.
A few agency owners sell to a long-time employee, but some of these sellers regret having done so because the buyer could not make the required payments. In such cases, it is important for the seller to have retained the right to repossess the agency if the buyer defaults.
Once you have found one or more prospective buyers, your fourth step should be to retain an attorney who is experienced in representing sellers in acquisitions and can answer all your questions.
I hope that readers who are travel people don't think that I am patronizing them or belittling them. If I were an agency owner, I am sure I would be a travel person, too.