Industry Spotlight: Advertising and Marketing
Whether it’s a new venture for an entrepreneur or a business for sale after years of industry experience, Marketing and Advertising companies have come to be an important piece of the puzzle for any business owner. At The Firm Advisors, we have helped a variety of existing enterprises change hands. Here are some helpful tips for buying a business in the marketing, advertising, design and public relations sectors.
Tips for Buyers
Go in with open eyes.
In this industry, particularly, have a good working knowledge of the staff capabilities as you plan for your growth. In marketing specifically, many businesses have adopted a contractor model, which means you have availability within your network to add additional capacity using the same contractors who may be hired to do, for example, one video-based project per week. There may be additional manpower available simply by request.
Envision Your Customer
Many firms have a niche in a particular industry segment, such as health and wellness or packaging design. Know the business’s typical clientele and determine if that is a sector you’d like to continue to operate in, or if your plan is to expand beyond the existing customer portfolio.
Understand the Contracts
Like in construction, project-based businesses typically bring in more overhead revenue, but the income can be less consistent. Many marketing firms focus on rebranding and repositioning their clients, which and profitable good project to have, but it may mean that you are continuously bidding new work. Ongoing contracts may require specific services at set intervals, which could include SEO updates, monthly audio ad updates, or similar.
Who’s the Contact?
It’s important as a buyer to know who the customers are used to speaking with when they contact the business. If there are project-managers who do the day-to-day client contact, your involvement as the new owner may be minimal. However, whether the initial work is bid or won by the current owner can vary largely by the company’s structure. This is not an insurmountable obstacle; most Sellers with client contact understand they may need a longer-than-average transition period to make the appropriate introductions between clients and a new owner/operator.
Get used to the term “asset light.”
Businesses in this sector typically have little-to-no hard assets. This isn’t a bad thing, as many SBA lenders are friendly to service-based businesses, but there may be a personal collateral requirement to back up the bank’s investment in a cash flowing business.
Watch for Pass-Through Income
If your potential acquisition has an element of media buying, you may want to check with your Broker on the diversification of revenue when it comes to pass-through income. If, for example, a company is purchasing ads in a block from a particular media outlet, then reselling that or placing it among their clients, they may be reporting the sale of the ad block as top-line revenue. As with any business dealing with a cost of goods sold, be knowledgeable on if this number is or is not reported in the Net Profit after COGS.
All in all, marketing and advertising businesses are one of the hottest B2B service companies available due to their flexibility for the owner's involvement. Contact us at 402-998-5288 if you'd like to review opportunities in this exciting industry.
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