So, just how much is my travel agency worth? This is a question our staff hears all the time. The answer is: “Your travel business is worth whatever the most motivated buyer is willing to pay at the time you wish to sell.” Granted, there are certainly some benchmark rules of thumb. Sellers must keep in mind that buyers are looking at the acquisition opportunity with eyes towards paying off the investment as quickly as possible. So, in general terms, here is how we value an agency in today’s market. Keep in mind, tomorrow’s market might be vastly different.
Small businesses in which owners earn less than $100K normally trade at 1.5 times annual total owners takeout. However, if the total amount of salary profit (including any and all perks received by the owner) is in the neighborhood of $250K, then sellers can expect to receive twice that amount from a qualified buyer. Thus, as the owner’s compensation level rises, so too does the multiplier. To provide an example, if the owner of XYZ Travel takes a $40K salary in addition to running his car, cell phone, entertainment and other personal expenses through the company in the amount of $30K and the business shows a $10K profit, this individual would be looking at a total seller’s discretionary cash of $80K. In such a case, we would most often implement a 1.5 multiplier and this travel business owner would be looking at a purchase price of $120K.
Potential does not get calculated into the equation. The value of the business is mostly determined by the performance of the agency in the 12 months prior to closing. In many transactions, the performance of the agency in the 12 months after the sale also plays a role in determining the final price. In fact, in many cases the final purchase price is not determined until one year after the sale, when transitional performance can be calculated. With zero hard assets, most transactions involve an earn-out component. The transition year right after the sale is critical to the future of the business. Passing the baton properly allows for smooth integration of the two businesses.
We are also asked, “What are the deal killers?” And that can be boiled down to two main factors–egos and attorneys from outside the industry. Selling a business (like a home) is emotional, but to realize the best return on your investment, you need to keep your emotions and egos in check. As for the attorneys—travel is complex; and having a non-industry attorney involved in the sale will do more harm than good. You do not go to a dermatologist if you are having a heart attack.
Even noting all of the information above, it is important to remember that these are simply general guidelines. There are many other factors that can easily increase (or decrease) the multiplier or comprehensively alter the foundational value of the company. Things like short-term leases, high barriers to entry, employees and/or accounts under contract can all trigger amendments to the general framework outlined above.
Having sold over 540 travel-related businesses, ITA is equipped to help sellers achieve the very best possible price for their agency when the time is right. If you, as a TRO reader, are considering selling your agency (or are just curious), ITA will offer an opinion of value for $200.00.
Innovative Travel Acquisitions, Inc. president Bob Sweeney and staff have completed 514 acquisitions of tour and travel related businesses since their inception in 1991. He is a proud member of ASTA,IBBA, NTA and many other known industry affiliations. Known as “the Matchmakers for the Travel and Tour Industry” they are available to answer any questions you may have by contacting them via phone 800-619-0185 or by sending an e-mail to firstname.lastname@example.org.
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