Best Structure for Agency Business with Few Clients

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by a searcher from Pace University
in New York, NY, USA

2yrs ago

Best Structure for Agency Business with Few Clients

Here is a brief summary.

Digital marketing agency for sale. Only 4 current clients so if one leaves, that's a big loss on the P&L.

Seller is open to both 100% seller financing and an earn-out so I feel like I can make this work with the right offer. He just wants out of the business, and I want to minimize all of my risk.

Curious what some members here would recommend as the best way to approach this so there isn't any risk to me if any of the current clients end up leaving.

Thanks

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reply by a searcher 2yrs ago
from Emory University in Tucson, AZ, USA

^redacted‌ While I don't have a specific example to share, I believe revenue-based financing (or royalty on revenue) could be a winning strategy for both parties. With the current decline in VC funding for CPG companies - and their demands that are often contrary to building a sustainable company - alternative financing options like the CARE instrument redacted are gaining traction. By adapting a similar approach, you can mitigate downside risks while offering the seller additional upside potential through continued company success and their willingness to self-finance.

reply by a searcher 2yrs ago
from University of Texas at Austin in Fort Worth, TX, USA

Agree with DyShaun - I would offer [15%] of revenue of retained clients for first 3 years. Would target ~1/2 profitability so the max is 1.5x earnings if all 4 clients stay 3 years. Seller gets half of what he would've made, but without the effort, for next 3 years. At that small of a size, he doesn't have many options, so anything is better than nothing.