Building value
Building value before a transaction
The value of an agency at a transaction is shaped by decisions made in the years before it. This guide sets out the levers that move earnings and the multiple a buyer applies, how to measure progress on each, the trade-offs between them and where to start.
In short: Buyers pay a multiple of sustainable earnings, so value is built by growing the earnings a buyer will underwrite and by moving the things that move the multiple: specialism, recurring revenue, leadership depth, client spread and cash conversion. The levers compete for the same time and money, so prioritise by what buyers in your sector pay for and by how long each takes. Simple rules such as “recurring revenue is always worth more” need qualifying. Give each lever a metric, an owner and a period, and start with the three that matter most.
Why two to three years
Some of what a buyer tests can be fixed in weeks: definitions, a reconciled bridge, contract housekeeping. The things that move the multiple take longer. A second tier of leadership is more convincing once it has run the business through a planning cycle. A shift in revenue mix is more convincing when it shows in more than one year’s figures. A new specialism needs clients who prove it. Buyers tend to discount recent change because they cannot yet tell whether it will hold. Two to three years is a useful planning horizon; it is neither a waiting period nor a rule: the evidence builds as the change is sustained, and a founder with less time works with what can be shown. Preparing your agency for sale covers the final eighteen months; this guide is about the period before it.
The levers, and the assumptions to qualify
The levers below are the ones that most consistently affect what buyers underwrite and the multiple they apply. Each comes with a common assumption that needs qualifying.
- Sustainable earnings. Profit that a buyer believes will recur, after a market cost for the founders’ roles. Growth in EBITDA that comes from underpaying yourselves or deferring hires is not value.
- Specialism and positioning. A clear answer to what you are known for and by whom, with a client list that proves it. Qualify: specialism in a declining or commoditising discipline shrinks the pool of buyers without raising the multiple. The test is scarcity to a buyer. Narrowness on its own does not pass it.
- Revenue model. Buyers tend to underwrite contracted and recurring revenue more confidently than project revenue, but not automatically. Qualify: a retainer at a thin margin with a short notice period is not safer than a strong project pipeline with a measured win rate and repeat clients. Buyers look at predictability and margin together. Improving revenue quality in a project led agency covers this in detail.
- Client spread. Lower concentration reduces the risk a buyer prices. Qualify: shrinking the largest client to improve a ratio destroys value; winning clients of a similar size improves the ratio and the earnings.
- Leadership depth. People other than the founders who win work, run clients and manage the business. This affects multiple, structure and the founders’ own freedom to leave.
- Cash conversion and working capital. Profit that becomes cash, with disciplined billing, deposits where the sector allows and controlled work in progress. It affects equity value directly and the buyer’s confidence indirectly.
- Systems and information. Management information that is produced monthly, trusted and used. It does not raise the multiple on its own; its absence lowers it.
- Intellectual property and product. Tools, data or methods that clients pay for and a buyer could not replicate quickly. Qualify: a tool that only the agency uses is a cost unless it changes margin or wins work.
- Delivery economics and pricing. Whether efficiency gains in delivery, including from AI enabled tools, show up as sustained margin or are competed away in price. Qualify: fewer hours do not reduce a salary bill on their own. See AI, pricing and agency margins.
A scorecard for each lever
A lever without a metric, an owner, a horizon and a review rhythm is an intention. The scorecard separates two things that are easy to confuse: how long the improvement takes to achieve and show (the horizon, with its milestones and evidence), and how often progress is reviewed (the review rhythm). A monthly review does not make a lever move faster. The horizons are illustrative and depend on the starting point; the metrics and the relevance column should be rewritten for your sector and your likely buyers.
| Lever | Outcome a buyer values | Metric | Owner | Illustrative horizon, milestones and evidence | Review | Relevance by sector |
|---|---|---|---|---|---|---|
| Sustainable earnings | EBITDA that recurs after the cost of leadership | Normalised EBITDA after replacement cost; margin on net revenue | Finance lead | Six to twelve months to establish a reconciled run rate; evidence is the bridge and a year of monthly accounts that tie to it | Monthly | Universal |
| Specialism | Scarcity to a buyer; pricing power | Share of net revenue from the core specialism; win rate in it; price realisation | Founder or managing director | Twelve to twenty-four months: positioning agreed, first wins inside it, case studies, then a rising share of revenue | Quarterly | Higher where buyers seek a capability gap; lower in generalist consolidation |
| Revenue model | Predictability with margin | Share of net revenue contracted twelve months out; retained margin against project margin; forecast accuracy | Finance and client leads | Twelve to twenty-four months, because terms change at renewal; evidence is contracts, renewal history and a year of forecast against actual | Monthly | Weighted differently in project led sectors such as experiential |
| Client spread | Lower dependence | Share of gross profit from top client and top five; number of clients above a threshold | Client services lead | Twelve to thirty-six months, set by win rate and client size; milestone when the top client falls below a target share through growth elsewhere | Quarterly | Universal; tolerance higher where contracts are long |
| Leadership depth | Transferability | Share of top client relationships led by people other than the founders; decisions taken without founders; tenure of second tier | Founders | Twelve to twenty-four months: appointments made, clients handed over one by one, a planning cycle run without the founders in the room | Half yearly | Universal; critical where founders are the brand |
| Cash conversion | Equity value; confidence | Cash conversion of EBITDA; debtor days; WIP days; deposits as share of project value | Finance lead | Three to six months to change billing and deposit terms on new work; two seasonal cycles to evidence the effect | Monthly | Critical in events and production; relevant everywhere |
| Systems and information | Trust in the numbers | Days to close the month; reconciliation of management to statutory accounts; forecast variance | Finance lead | Three to six months to implement; evidence is a run of months closed on time and reconciled | Monthly | Universal |
| IP and product | Margin or differentiation | Revenue or margin attributable to proprietary tools; client adoption | Product or operations lead | Twelve to twenty-four months: build or buy, first paying clients, then adoption and margin data | Half yearly | High in martech and data led agencies; selective elsewhere |
Trade-offs and sequencing
The levers compete. Hiring a second tier reduces EBITDA before it increases transferability. Moving to retained work can lower margin for a period and lose project clients who will not convert. Narrowing positioning costs revenue from work outside the specialism before it wins better work inside it. Investing in tools delays cash conversion. A founder who pulls every lever at once shows a buyer three years of falling profit and a story about why.
Sequence by what a buyer in your sector pays for and by how long each lever takes. Leadership depth and client spread take longest and are valued almost everywhere, so they start first. Revenue model and specialism follow, shaped by the buyers you expect. Systems and cash discipline can start immediately and cost little. IP and product only where the sector rewards it.
Strategic optionality
Building value is about more than the price in a sale. A business with sustainable earnings, a leadership team and clean information has choices: to sell, to take investment, to acquire, to hold and pay dividends, or to wait for a better market. In our experience the founders who get the best outcomes are often the ones who did not have to transact. The work in this guide is worth doing with or without a sale at the end of it, and it is the work that turns an unsolicited approach into an opportunity.
Motion’s view
The most valuable single change we see founders make is to run the business as if a buyer were already watching: monthly numbers they trust, a leadership team that meets without them and a clear answer to what the agency is for. It raises the value of the business and, in our experience, makes it a better business to own in the meantime.
The first ninety days
- Weeks one to four. Define revenue, net revenue and gross profit on one basis. Build the normalised EBITDA bridge, including the market cost of the founders’ roles. Produce the scorecard with current values for each metric.
- Weeks five to eight. Decide which buyers you would expect in two to three years and what they pay for. Choose the three levers that matter most for them and that take longest. Set a target and an owner for each.
- Weeks nine to twelve. Start the long work: name the second tier and give them clients and decisions; set the new business plan around the specialism; fix billing and WIP discipline. Put the scorecard into the monthly management meeting so that it gets reviewed every month.
What to do next
Build the scorecard and look at the gaps. If a transaction is more than two years away, the strategic advisory page describes how we work alongside founders on this, in four week sprints with no long term commitment. If it is closer, move to preparing your agency for sale.
Want to know which levers matter most for your agency?
A confidential conversation with a founding partner about where to start. Speak to us.
Written by Rick Palmer and Rob Reid, founding partners of Motion Advisory Partners. General guidance, not advice on any specific business or transaction. Legal and tax points vary by jurisdiction and should be checked with appropriate advisors.