You may have been to a presentation and some point in your creative agency life, heard the presenter talking about EBITDA and wondered “what’s all that about and why should I care?”
At some point in the future, part of your retirement or exit plan may be to sell your agency and retire off to a small cottage by the sea. When that time comes, you’ll need to know how much you can get for the agency. This is where EBITDA comes into play.
EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation.
It’s very similar to taking your net profit figure.
Agencies are typically valued by taking a multiple of the EBITDA.
Agencies can go for anywhere between five and ten times their EBITDA figure. So to work out how much your agency is worth, take the operating profit from your management accounts, i.e the profit before tax, and multiply it by a number between five and ten. That’ll give you a rough guide to how much your agency is worth today.
How do you get a higher multiple of EBITDA when you sell?
Agencies that have the higher EBITDA multiples when they sell typically have the following characteristics:
- The agency can run without the owner being present.
- Everything within the agency is systematised and recorded.
- There is an excellent work flow process.
- They have a great client list and long-standing relationships with clients. So there you have it.
That’s what EBITDA is. How much is your agency worth today? Is it worth as much as you thought?
Would you like to unlock the hidden profits (and EBITDA) within your agency to improve it’s value? If you would, why not contact us to book an agency review today.