By Rick Gould, CPA, JD
Every PR business is ultimately for sale. The fact that we are still in a downturn makes it even more challenging. Banks aren’t lending. There are multiples more sellers than buyers. Buyers that are active and manage to obtain credit are buying quality firms strategically- for specialty, for location, or for intellectual capital.
So what can you do NOW if selling your firm is even remotely an eventual goal? Follow these 10 tips and you will be able to successfully prepare end enter negotiations from a position of strength.
1. Start planning early.
Get outside counsel to learn the process and what you will ultimately need to do prior to discussions with a buyer.
2. Get your financials in order.
Be sure to use a reputable CPA firm and request they do a review report. This is short of an expensive audit but at a higher level than a basic compilation. Never believe you can ever substitute your business tax returns for a signed-off CPA report. A buyer will politely walk away.
3. Be realistic as to price expectations.
There are many perceived formulas circulating in the industry, but there are only a handful that are industry specific and acceptable. Get a professional valuation of your business.
4. Have a strong second tier of management.
This is critical in supporting value. If a firm is just an owner and a bunch of AE’s it substantially reduces value. Buyers always look beyond the top tier of management, beyond the CEO, beyond the principals.
5. Have systems in place.
Accounting, time management and workflow utilization systems are imperative for maximizing efficiency and profitability. They also adds “perception points.”
6. Expect an “earnout period”.
Be prepared to be paid out over 3-5 years based on agreed-to targets and goals. This earnout method is widely used and is equitable to both buyer and seller.
7. Have non-compete, non-solicitation agreements in place with key staff.
Include them in the sale- as you get a check they get a check. Thin is very incentivizing.
8. Have an integration plan.
Show how you would divide tasks post-sale, integrating your staff and those staff members and technologies of the buyer.
9. Be mindful of your lease.
Don’t renew your lease, or worst case renew it for a short-term. Try to go to month to month if your lease expires.
10. Write a business plan.
A business plan is a mission-critical, challenging project. You may need professional help preparing one. Show how you would use your staff and resources after the sale. It will always add “perception points” with a buyer. To do a thorough business plan you are required to think about the future. It makes you think about staffing, technology and the competition. It is a roadmap. It is truly an art to write a quality business plan. If you already have one for your firm, just a little updating will do the trick. Do so and watch a potential buyer light up and want to further discussions to buy your firm.
Tuesday, June 1, 2010
Wednesday, March 3, 2010
Growth Momentum, Circa 2010
By Rick Gould, CPA, JD
As we see the economic uncertainty of 2009 subside, we slowly exit the recession that has hammered the PR industry for the past 18 months. Now is the time to plan for a period of growth. Many firms saw their revenues cut in half over the last year, a painful and humbling experience.
Set targets, and set goals for growth in revenues today. Growth in revenues, if managed carefully, will beget growth to the bottom line. Looking at historical organic growth rates and projecting them out to the future should be a high priority.
Growth Momentum best describes this kind of economic recovery activity. This kind of thinking will positively drive your strategy. Is there a niche you would like to try (i.e. Healthcare, Crisis, Public Affairs etc)? The growth that most matters is the growth in the value of your firm. Just growing the top line will generally not increase value. Growing the bottom-line is the key to growing value.
Growth Momentum also has risk: the risk of growing in revenue size and staff with a negative effect on the bottom line. Economies of scale do not automatically occur unless this momentum is managed judiciously and effectively.
My blogs and messages keep coming back to our Annual Benchmarking Study. Industry benchmarks closely managed in relation to your actual stats provide the utmost critical tool to monitor and manage your Growth Momentum.
Most firms want to grow, but are unsure about how to best approach and manage the process. New challenges, new opportunities, and increased depth of services and staff are all contributing variables to growth. Growth can be a careful, measured approach or it can be a careless, emotionally driven one. Which approach do you think maximizes a firms’ value and price tag when the agency principal wants to monetize this valuable asset?
Larger firms that consistently surpass industry benchmarks possess the value and price-increasing intangibles in the valuation of their firm when they are in play to be sold. This will further drive growth momentum.
By adopting a culture of Growth Momentum and managing via benchmarking, firms will inherently evolve to keep staff motivated and attract new clients. Growing, successful firms that also exhibit top quality service and value are the ones that will survive the economic uncertainty.
Your starting point to launch this concept and to adopt a culture of Growth Momentum is to participate in our Best Practices Benchmarking Survey, being distributed on Monday, March 1. By doing so, you will be one of the first to receive the full survey report and findings once it is released. This report will outline the critical industry benchmarks you need to be following to maximize your economic recovery activities.
StevensGouldPincus 2010 Benchmarking Survey
As we see the economic uncertainty of 2009 subside, we slowly exit the recession that has hammered the PR industry for the past 18 months. Now is the time to plan for a period of growth. Many firms saw their revenues cut in half over the last year, a painful and humbling experience.
Set targets, and set goals for growth in revenues today. Growth in revenues, if managed carefully, will beget growth to the bottom line. Looking at historical organic growth rates and projecting them out to the future should be a high priority.
Growth Momentum best describes this kind of economic recovery activity. This kind of thinking will positively drive your strategy. Is there a niche you would like to try (i.e. Healthcare, Crisis, Public Affairs etc)? The growth that most matters is the growth in the value of your firm. Just growing the top line will generally not increase value. Growing the bottom-line is the key to growing value.
Growth Momentum also has risk: the risk of growing in revenue size and staff with a negative effect on the bottom line. Economies of scale do not automatically occur unless this momentum is managed judiciously and effectively.
My blogs and messages keep coming back to our Annual Benchmarking Study. Industry benchmarks closely managed in relation to your actual stats provide the utmost critical tool to monitor and manage your Growth Momentum.
Most firms want to grow, but are unsure about how to best approach and manage the process. New challenges, new opportunities, and increased depth of services and staff are all contributing variables to growth. Growth can be a careful, measured approach or it can be a careless, emotionally driven one. Which approach do you think maximizes a firms’ value and price tag when the agency principal wants to monetize this valuable asset?
Larger firms that consistently surpass industry benchmarks possess the value and price-increasing intangibles in the valuation of their firm when they are in play to be sold. This will further drive growth momentum.
By adopting a culture of Growth Momentum and managing via benchmarking, firms will inherently evolve to keep staff motivated and attract new clients. Growing, successful firms that also exhibit top quality service and value are the ones that will survive the economic uncertainty.
Your starting point to launch this concept and to adopt a culture of Growth Momentum is to participate in our Best Practices Benchmarking Survey, being distributed on Monday, March 1. By doing so, you will be one of the first to receive the full survey report and findings once it is released. This report will outline the critical industry benchmarks you need to be following to maximize your economic recovery activities.
StevensGouldPincus 2010 Benchmarking Survey
Monday, December 28, 2009
PR Agencies Gearing Up for a Robust 2010
By Rick Gould, CPA, JD
Our recent Economic Uncertainty Survey Report, to be released on January 11th, only confirmed what PR firm CEO’s predicted at the start of 2009: that it would be a challenging year, a year of client budget cuts, of staff layoffs, of decreased revenues and lower profit margins.
In February 2009, 65% of the 237 firms surveyed predicted major clients budget cuts, and now, the more results tabulated verify that prediction. 63.7% of the 157 firms responding showed a decrease in net revenues. My conclusion was that PR agency CEO’s are adept at predicting what lies in the future. 64% also predicted a substantial negative bottom line effect, which was also validated. The agency bottom line on an average, went from 19.2% to 11.6%; a 40% drop in profitability.
So it is with hope and confidence I predict that 2010 will be a year of rebuilding, rebounding and increased profitability. 64% of the firms currently surveyed believe revenues will increase in 2010. 22% are confident that they will remain the same. In these turbulent times “flat” is “up”.
Several of the CEO’s I interviewed added that their predictions were conservative. Many who checked off “no change” stated that they were reluctant to check “increase” in order to “play it safe”. Since when do PR CEO’s play it safe? Entrepreneurs are classic risk-takers and playing it safe was never their end game. This just goes to show the magnitude of the impact this years events have had on PR.
If firm CEO’s manage their firm using our historically validated benchmarks, hire and train quality staff, take on new clients selectively, and watch client profitability closely then the prediction of increased revenues and profitability for 2010 will be realized. I hope a year from now I will be reporting this reality to you.
Manage your firm as if you will be selling it tomorrow and you will soon see how 2010 has the potential for a banner year for your firm and the industry.
Happy Holidays and Happy New Year!!
P.S. also check out our current SGP Blog entry, “10 Predictions for 2010”.
stevensgouldpincusblog.blogspot.com
Our recent Economic Uncertainty Survey Report, to be released on January 11th, only confirmed what PR firm CEO’s predicted at the start of 2009: that it would be a challenging year, a year of client budget cuts, of staff layoffs, of decreased revenues and lower profit margins.
In February 2009, 65% of the 237 firms surveyed predicted major clients budget cuts, and now, the more results tabulated verify that prediction. 63.7% of the 157 firms responding showed a decrease in net revenues. My conclusion was that PR agency CEO’s are adept at predicting what lies in the future. 64% also predicted a substantial negative bottom line effect, which was also validated. The agency bottom line on an average, went from 19.2% to 11.6%; a 40% drop in profitability.
So it is with hope and confidence I predict that 2010 will be a year of rebuilding, rebounding and increased profitability. 64% of the firms currently surveyed believe revenues will increase in 2010. 22% are confident that they will remain the same. In these turbulent times “flat” is “up”.
Several of the CEO’s I interviewed added that their predictions were conservative. Many who checked off “no change” stated that they were reluctant to check “increase” in order to “play it safe”. Since when do PR CEO’s play it safe? Entrepreneurs are classic risk-takers and playing it safe was never their end game. This just goes to show the magnitude of the impact this years events have had on PR.
If firm CEO’s manage their firm using our historically validated benchmarks, hire and train quality staff, take on new clients selectively, and watch client profitability closely then the prediction of increased revenues and profitability for 2010 will be realized. I hope a year from now I will be reporting this reality to you.
Manage your firm as if you will be selling it tomorrow and you will soon see how 2010 has the potential for a banner year for your firm and the industry.
Happy Holidays and Happy New Year!!
P.S. also check out our current SGP Blog entry, “10 Predictions for 2010”.
stevensgouldpincusblog.blogspot.com
Wednesday, November 11, 2009
Post-Graduate Education Has Failed Wall Street
By Rick Gould, CPA, JD
Having weathered the rigors of graduate and law school, as well as teaching a graduate course in Entrepreneuring, I’ve noticed something is absent from the classroom environment. There is a critical piece missing from the overall education puzzle.
Many of today’s troubles on Wall Street stem from the lack of emphasis on sound business practices and ethics. Special focus on these critical areas is needed to develop a specific mindset. Education in the areas of developing strong ethics and pay-for-performance systems are the cornerstone for addressing this problem.
Incentivization programs are an important ingredient to the capitalistic system. But when executives become rich as their companies chalk up huge losses, then the stockholders are paying a hefty price and long-term share value and reputation are eroded. And this turns out to be a lose-lose for all stakeholders involved.
What is missing in most of today’s post-graduate MBA programs, Law School and Doctoral programs is analysis of executive compensation systems. This should be a required course early on in all programs, certainly at business schools and the required ethics course at law schools.
The concept of bonuses based on actual performance must be ingrained as the new cultural mindset going forward. Organizational structure, the role of the Board of Directors and how board members get compensated should all be scrutinized. Base pay, bonuses, stock options, expense allowances and perks should all have transparency and accountability.
Revamping corporate governance and compensation systems to be deeply rooted in ethics, to be specifically tied to actual performance, and to be transparent will go a long way toward preventing the degree of financial meltdown we have witnessed this past year.
What critical piece of the puzzle do you think is missing? How do you foster sound business practices and ethics in your firm?
Having weathered the rigors of graduate and law school, as well as teaching a graduate course in Entrepreneuring, I’ve noticed something is absent from the classroom environment. There is a critical piece missing from the overall education puzzle.
Many of today’s troubles on Wall Street stem from the lack of emphasis on sound business practices and ethics. Special focus on these critical areas is needed to develop a specific mindset. Education in the areas of developing strong ethics and pay-for-performance systems are the cornerstone for addressing this problem.
Incentivization programs are an important ingredient to the capitalistic system. But when executives become rich as their companies chalk up huge losses, then the stockholders are paying a hefty price and long-term share value and reputation are eroded. And this turns out to be a lose-lose for all stakeholders involved.
What is missing in most of today’s post-graduate MBA programs, Law School and Doctoral programs is analysis of executive compensation systems. This should be a required course early on in all programs, certainly at business schools and the required ethics course at law schools.
The concept of bonuses based on actual performance must be ingrained as the new cultural mindset going forward. Organizational structure, the role of the Board of Directors and how board members get compensated should all be scrutinized. Base pay, bonuses, stock options, expense allowances and perks should all have transparency and accountability.
Revamping corporate governance and compensation systems to be deeply rooted in ethics, to be specifically tied to actual performance, and to be transparent will go a long way toward preventing the degree of financial meltdown we have witnessed this past year.
What critical piece of the puzzle do you think is missing? How do you foster sound business practices and ethics in your firm?
Monday, September 21, 2009
Listen to your Chief Financial Officer (CFO)
By Rick Goud, CPA, J.D.
The CEO may be the visionary leader of a PR firm, but a firm also needs a strong financial leader to maximize its potential. Most PR agency CEO’s are not financially savvy. For that matter I am being quite kind in my assessment.
It is fine to not master the financial end of the PR business. However, especially in recessionary times, know your limitations and lean heavily on your CFO for careful guidance and tutelage. If you do not have a CFO, find one. Now more than ever, you need to listen to the tune that YOUR numbers are singing.
One of my partners, Ted Pincus (Financial Relations Board founder and CEO, sold to what is now IPG in 2000), at StevensGouldPincus is among very few PR CEO’s that I have met that fully understand balance sheets and P&L’s. If you do not possess this unique combination of talents, then there are steps you can take.
What has become popular in many smaller agencies is to hire a part-time CFO. The part-time CFO may work 2-3 days per week, but will not come cheap. For example, if a full-time CFO commands an annual salary of $200,000, then a part-time CFO may command $100,000. The upside is you are getting the talent, experience and education of a $200,000 CFO. The value-added may be well worth the investment.
There are many highly experienced individuals that would welcome a part-time position, including well qualified, business-savvy mothers with young kids. The part-time position could result in a happy, motivated and very productive person, as well as a PR firm that improves profitability.
The CFO’s office should be right next door to the CEO. The CEO needs to meet with the CFO regularly, confide in her/him and most importantly have full confidence and trust in that person. Close proximity and communication are key.
We have recently witnessed billions of dollars lost forever as a result of corporate scandals marked by mismanagement, fraud and greed. Accountability and fiscal responsibility are now much higher up on the chart of boardroom priorities. Consumers demand it, and your clients likely demand it too.
The CEO, especially in PR agencies, is usually the eternal optimist, the strategist, the rainmaker. The CFO is usually the realist, the detail person, the one who can see behind the numbers, project the financial future of the firm and proactively recommend what could be a hiccup in net revenue and profitability trends. The CFO can and should tell you exactly if layoffs will be needed, or if you should be cutting back on freelancers, or subletting space or cutting back on T&E expenses. The sum of the CEO and CFO positions ideally nets a whole that is greater than that of its parts.
The CEO may be the visionary leader of a PR firm, but a firm also needs a strong financial leader to maximize its potential. Most PR agency CEO’s are not financially savvy. For that matter I am being quite kind in my assessment.
It is fine to not master the financial end of the PR business. However, especially in recessionary times, know your limitations and lean heavily on your CFO for careful guidance and tutelage. If you do not have a CFO, find one. Now more than ever, you need to listen to the tune that YOUR numbers are singing.
One of my partners, Ted Pincus (Financial Relations Board founder and CEO, sold to what is now IPG in 2000), at StevensGouldPincus is among very few PR CEO’s that I have met that fully understand balance sheets and P&L’s. If you do not possess this unique combination of talents, then there are steps you can take.
What has become popular in many smaller agencies is to hire a part-time CFO. The part-time CFO may work 2-3 days per week, but will not come cheap. For example, if a full-time CFO commands an annual salary of $200,000, then a part-time CFO may command $100,000. The upside is you are getting the talent, experience and education of a $200,000 CFO. The value-added may be well worth the investment.
There are many highly experienced individuals that would welcome a part-time position, including well qualified, business-savvy mothers with young kids. The part-time position could result in a happy, motivated and very productive person, as well as a PR firm that improves profitability.
The CFO’s office should be right next door to the CEO. The CEO needs to meet with the CFO regularly, confide in her/him and most importantly have full confidence and trust in that person. Close proximity and communication are key.
We have recently witnessed billions of dollars lost forever as a result of corporate scandals marked by mismanagement, fraud and greed. Accountability and fiscal responsibility are now much higher up on the chart of boardroom priorities. Consumers demand it, and your clients likely demand it too.
The CEO, especially in PR agencies, is usually the eternal optimist, the strategist, the rainmaker. The CFO is usually the realist, the detail person, the one who can see behind the numbers, project the financial future of the firm and proactively recommend what could be a hiccup in net revenue and profitability trends. The CFO can and should tell you exactly if layoffs will be needed, or if you should be cutting back on freelancers, or subletting space or cutting back on T&E expenses. The sum of the CEO and CFO positions ideally nets a whole that is greater than that of its parts.
Thursday, August 27, 2009
Maintain Brand Equity During a Downturn
By Rick Gould, CPA, J.D.
For PR firms, what is more important than your brand? It must be treated and protected as if it were a unique, complex piece of intellectual property.
Brand equity is an important factor in PR firm valuations; a valuable asset that can be monetized. The strength and experience of your management and staff, along with the quality of your clients, are a few things that improve brand equity.
To build your brand, you do not need to commit to big budgets, especially in recessionary times. What builds the brand is the quality of your work, the perceived value- added to your client base and the approach to service producing measurable results. This requires an attitude and mindset consisting of more than dollars. It requires integrity in your approach and trust in your client relationships. And more than ever it requires a positive reputation.
Richard Edelman, in his midyear Global Trust Barometer, noted that trust in business and government is rebounding. It was way down a year ago.
Trust is what creates loyalty and improved brand recognition. When a firm creates a brand as a “trusted adviser”, that brand may stick for years. A brand of trust, integrity and confidence is a key strategic asset.
What is evolving in business is a major shift away from traditional advertising in trade magazines/ directories and toward areas relating to the web. In a recession, firms typically make the mistake of cutting back on brand building activities. Don’t fall into that trap.
Brand building should be an ongoing effort. Forward-thinking executives avoid cutting their branding budgets. All available channels to build your brand, including constantly improving your website and search engine optimization efforts, should be pursued.
Develop an over-arching theme for your firm and promote it in your writings, capabilities kits and speeches. Do what Richard Edelman has done so well over the years, as he ascended to be the largest independent PR firm in the world. He built his brand upon trust and exemplary value- added performance.
Find something unique to build your brand upon. Make it important, relevant and lasting. Do so and your brand equity can be more greatly monetized through an M&A transaction at a time of your choosing.
For PR firms, what is more important than your brand? It must be treated and protected as if it were a unique, complex piece of intellectual property.
Brand equity is an important factor in PR firm valuations; a valuable asset that can be monetized. The strength and experience of your management and staff, along with the quality of your clients, are a few things that improve brand equity.
To build your brand, you do not need to commit to big budgets, especially in recessionary times. What builds the brand is the quality of your work, the perceived value- added to your client base and the approach to service producing measurable results. This requires an attitude and mindset consisting of more than dollars. It requires integrity in your approach and trust in your client relationships. And more than ever it requires a positive reputation.
Richard Edelman, in his midyear Global Trust Barometer, noted that trust in business and government is rebounding. It was way down a year ago.
Trust is what creates loyalty and improved brand recognition. When a firm creates a brand as a “trusted adviser”, that brand may stick for years. A brand of trust, integrity and confidence is a key strategic asset.
What is evolving in business is a major shift away from traditional advertising in trade magazines/ directories and toward areas relating to the web. In a recession, firms typically make the mistake of cutting back on brand building activities. Don’t fall into that trap.
Brand building should be an ongoing effort. Forward-thinking executives avoid cutting their branding budgets. All available channels to build your brand, including constantly improving your website and search engine optimization efforts, should be pursued.
Develop an over-arching theme for your firm and promote it in your writings, capabilities kits and speeches. Do what Richard Edelman has done so well over the years, as he ascended to be the largest independent PR firm in the world. He built his brand upon trust and exemplary value- added performance.
Find something unique to build your brand upon. Make it important, relevant and lasting. Do so and your brand equity can be more greatly monetized through an M&A transaction at a time of your choosing.
Friday, August 7, 2009
Beyond The Salary - Perks that Count
By Rick Gould, CPA, J.D.
In recent months I have been performing an extraordinary number of Valuations of PR agencies, reasons being intended sale of the firm, buy-ins of partners, buy-outs of partners or simply to get a reading on the worth of the firm.
One of the areas I closely analyze are employee perks. I have compiled a list of perks from firms I have reviewed.
Feel free to use it as a checklist in comparing your firm’s compensation package, beyond the salary.
You may even consider, as an option to your staff, offering some of these perks as an alternative to a raise. If the perk costs you the same amount and you get a write-off and it is tax-free to the employee it is a home run.
The P- List:
In recent months I have been performing an extraordinary number of Valuations of PR agencies, reasons being intended sale of the firm, buy-ins of partners, buy-outs of partners or simply to get a reading on the worth of the firm.
One of the areas I closely analyze are employee perks. I have compiled a list of perks from firms I have reviewed.
Feel free to use it as a checklist in comparing your firm’s compensation package, beyond the salary.
You may even consider, as an option to your staff, offering some of these perks as an alternative to a raise. If the perk costs you the same amount and you get a write-off and it is tax-free to the employee it is a home run.
The P- List:
- Health Insurance
- Dental Insurance
- Vision Insurance
- Therapy for work related disorders
- Life Insurance
- Long-term Disability Insurance
- Short-term Disability Insurance
- Health Club Membership
- 401K Plan
- Direct Deposit
- Flexible Spending Account
- Credit Union Membership
- Travel Allowance
- Theme Park Discounts
- Store Memberships
- Legal Assistance
- Tax Assistance
- Financial Planning Assistance
- Personal Leave (Sick, Bereavement, ill relatives care etc.)
- Maternity Leave
- Paternity Leave
- Additional Vacation days
- Extended Holiday weekends
- Reduced work week
- Education and Courses
Please email me if you have any perks that are not on the P-list rgould@stevensgouldpincus.com I will than re-blog the list at a future date.
Please do not include corporate cars, motorcycles, limos, car services, corporate apartments, corporate yachts, corporate jets, baby sitters, nannies, daycare and dog walkers. The P-list should be perks offered to your professional staff. “Executive” perks and abuses will be covered in a future blog.
My advice - If you do provide perks to your staff include a list of the perks and the value to the staffer at year-end either with their W-2, bonus check or annual review. It can only help the mindset of the staff in assessing their worth and perceived value to the agency by its management.
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