Latest / Travel Agency in a Year / Day 218: What to expect if someone offers to sell you their travel agency
Transcript
- Rachel: Welcome to the Travel Agency The Year podcast. I'm your host, Rachel Kay. I am a travel agency owner helping travel advisors step into their CEO mindset and really understand the like business funtim funta fundamentals. So you can build exactly what you want. Today is day 218. what is your travel agency actually worth? Do you want to sell it or do you want to buy someone else's book of business? Okay. If your part of your long-term 5, 10, 15-year plan involves building your agency to eventually sell it, today's episode is very important. It might be slightly deflating, dose of reality, followed by what actually is true about value. This is also a good episode if you have been approached by someone who's like, I'm nearing retirement and want to sell my agency. Just half a million will get you there. Most travel agencies, especially the boutique, and even many mid-sized ones, are built almost entirely entirely around one person's relationships, reputation, and personal trust with their clients. That is a beautiful thing for running the business day to day, and it's exactly what makes it so hard to sell. A buyer isn't just purchasing a client list or a booking system. They are hoping to inherit trust that clients built specifically with you. And trust doesn't transfer in a sale the way a physical asset does. Add to the fact that much of the revenue often runs through host agency relationships. So if you are approached and someone says, hey, I want to sell you my business, are they hosted? So there's a host agency relationship you need to be aware of, commission structures, even if they're independent, that may not be transferable, bookings that may not be transferable, and a business model with relatively low hard assets. Most of us don't have inventory, property, no long-term, like five, 10-year contracts locking in future revenue. All of this makes travel agencies a genuinely difficult category to value and sell compared to businesses with more tangible transferable assets. Okay, so back years ago I had a cleaning business, I decided to sell it. And I was in a B and I at the time and there was this dude that he and I w were like connecting, whatever, and he's like, I do business valuation. And I was like, well, I want to sell my business. I think it's time. And I was bringing in anywhere between 70 and $100,000 in gross revenue per month in my business. And so I was like, Okay, well, I, you know, basically hit the million dollar a year dream. I had like eleven employees. I had an office space I was renting. and it was a cleaning business. I did not have any secret magic cleaning formula for cleaning chemicals. I just bought wholesale, you know. My vacuums weren't some magic thing. They were vacuums that I knew how to repair because once I got to the point of being like just the owner, I would just be in the office like cleaning and repairing vacuums a lot of the time. So you got questions about vacuums? I am probably someone who can help you. But I had a huge client list, obviously, due to the gross revenue. And so he looked at everything and he's like, you don't have any hard assets. And I was like, nope. And he's like, you don't have any company cars? And I was like, nope, I just pay mileage out. I wanted to keep it simple. And he's like, okay. Well, essentially what you have is a client list. And clients don't have to stay with the new owner if they don't want to. So you can't ru I mean you just have a giant client list. And I was like, okay. And he's like, this is not worth nearly what it could have been worth if you had hard assets. And it's the same thing with a travel agency. Okay. So I sold it for a fraction of my gross monthly revenues to the manager of my business because I was just like, you know what? You want it, I want out, it's no big deal. And I had to learn that lesson because I remember I was probably early 30s when I started that. I'm old. It's fine. Yeah, very like 30, 31 when I started that company. And built it from scratch and I was like, I'm gonna be an entrepreneur. Mm-mm. I was still techni I mean, mm-mm. It wasn't worth anything. And I was like, okay, well that's lesson learned there. So if you do ever want to sell or someone approaches you to sell their travel agency, the value is gonna be five figures or less. I will tell you that right now. Unless they're just gonna give you all of their commission. And then they need to like then there's the fact, like, what if their clients cancel? So really under f like under 10,000 typically. So given all that, be very cautious if someone does approach you offering to sell you their agency, especially if the offer comes in quickly. And they talk themselves up and they don't have a true valuation of their business and they want you to decide fast. That's usually someone that wants to exit and doesn't wanna have to tell their clients, I can't manage any of this, so I gotta get rid of you, because they want that commission or a little bit of it, and so they figure if I sell this for $250,000, I get money in my pocket and this person gets some trips and an email list. I'm not saying that they're shady like that. I'm not saying that they're all shady, but just be very aware. Legitimate acquisitions can happen and do happen in this industry. They're far, far less common than in many other business categories, and a genuine buyer should expect a real due diligence process, not a rushed handshake deal. If an offer feels too easy or too good to be true for you, that's worth slowing down and getting outside advice, ideally from a professional who understands business valuation and isn't the party trying to buy from you. Okay, so what is a travel agency actually worth? Rather than an arbitrary number, think about value in a few concrete categories. There is recurring transferable revenue. Do does this travel agency have repeat clients and referral relationships that could reasonably continue with new ownership? Or is the book of business entirely dependent on the agent's personal relationships specifically? Because if it's If that if it's like a boutique agency, it's probably more dependent on the personal relationships because they don't have like their whole brand is built on those personal relationships, okay? Documented systems. Do they have solid processes, client management systems, pricing structures written down, or does everything just live in their head? Team and structure. Do they have other advisors or support staff already in place? That reduces a buyer's risk considerably compared to a business that's entirely one agent. Okay? The most important. Brand recognition independent of the agent that started it, independent of a personal name. A business with a distinct brand identity, the kind that we talked about a few weeks ago, and like day 195, is more transferable than one that's essentially your name travel. Okay. And you have to be very careful with their social media. If the social media content is all created by the owner of the agency, that brand is also hugely tied to their personal identity. So the more boxes that you can check from this, the closer that agency gets to being something genuinely sellable. And the further that it moves away from a single person boutique model, that's realistically closer to like a personal practice than a business asset. Which again, completely fine if that's the model somebody wants. Just know you can offer if you are a boutique agency, let's say you want to like retire or something. What you could do in that situation is you'd have to bring on someone onto your team and then slowly transfer everything in a like five year plan phasing out. And you might start with like I don't know, let's say you might start with like a 70-30 split or maybe even lower To have them acquire the business and you are spending all this time training them to take over the business. So you probably want to do a little bit of a lower split with that agent and like total revenue share and have them start taking everything over and transfer everything over. And then after that, once you're out, maybe like 10% for the next three to five years on any bookings they do with your clients. That could be a possibility, but just selling it for half a million dollars because you booked $500,000 in trips, not commission, but just trips. That is a bad news bear's deal if anyone approaches you and is just like, I'm selling my business. It's just multiple six figures. I need to retire. excuse me? No. Don't do that. Alright, tomorrow's episode, we're gonna zoom out. I don't know, I was trying to zoom myself out on the camera. If you're watching on YouTube, it did not work. Let's talk about building a simple five-year plan for your business and why that kind of long-range thinking consistently shows up in research for successful entrepreneurs. This is day 218 of the Travel Agency New Year podcast. Have a wonderful day.