The Roadmap to Selling a Travel Agency
It’s never too early to explore options for selling your travel agency.
2015 has been a fantastic year for mergers and acquisitions. Low interest rates, ease of access to capital and a growing exodus from Corporate America has given way to a new class of entrepreneurs looking for healthy businesses to invest in. Many first-time entrepreneurs seek a business that aligns with their hobbies, making the travel industry a hotbed for buyers seeking to acquire an established company.
The travel industry employees over 7.6 million people in America and can bring in profit margins around 4.1%. While many people thought travel agencies would slowly go the way of the library or record store, they are starting to make a comeback and regain value. Baby Boomers entering retirement are starting to travel more and instead of using websites like Expedia or Travelocity, they are reverting back to travel agencies. In the past four years, flights booked through travel agencies has increased by 11% and close to 77% of all cruises are booked through travel agencies. As nearly 10,000 Baby Boomers turn 65 every day and transition into retirement, travel agencies can expect an uptick in business and revenue, making it a good time to begin thinking about the next step.
If you have been thinking about selling your travel agency, it’s never too early to begin exploring options. The best time to sell a business is when it is trending upwards and with group and business travel expected to increase over 2016 and 2017, it might be the right time for you to begin planning. The first step to selling a travel agency is finding out how much it is worth. To get an idea of how your business stacks up, these formulas will show you what factors are taken into account when valuing a travel agency. Remember that only a professional intermediary can tell you the true value of your travel agency and that these formulas are merely a guide.
- 45% of annual gross profit
- 1-3x SDE + inventory
- 2-3x EBIT for small agencies, 3-5x EBITDA for large agencies
Hopefully now you have an idea of where your business currently stands so that you can begin making changes to get it to where it needs to be. We have sold over 500 businesses in the past 20 years and have helped hundreds of entrepreneurs increase the value of their business prior to selling. We hope these tips can help you prepare your travel agency for the next step and ultimately, help you obtain the highest sales price possible.
No matter what industry you are in, if you do not have a web presence for your business, you are negatively impacting your sales and growth potential. Independent travel agencies have to compete with mega-sites like Travel Zoo and Hotwire, and not having a web presence severely sets your business back. If you do not have a website, the first step is creating one. If you can add booking capabilities or an active blog that advertises deals, even better. While more people are seeking out travel agencies to book their trips, having a website with robust planning capabilities will also capture people who seek travel accommodations solely through the internet. Compliment your website with social media and a pay-per-click campaign and watch your numbers steadily increase. Buyers will also be more inclined to choose an agency with an established internet presence over one that has not invested anything into digital marketing.
Manage Cash Flow
Travel agencies often experience high levels of seasonality as any people are booking cruises and exotic vacations during the warmer months. This can lead to an uneven cash flow that impacts your EBITDA and concerns potential buyers. To create a more balanced cash flow, market special trips, tours and rates during winter months. While more people like to travel during the summer, there are tons of options during winter and advertising discounted rates might reel someone in who wasn’t planning a trip but couldn’t pass up a deal. A few ideas for winter travel could include discounted airfare around the holidays, Caribbean or Alaskan cruises, Northern Lights packages or deals to Australia or South America where it is still warm. Many travel agencies ramp up their marketing and discounts around Cyber Monday, where millions of people take advantage of lowered rates to book future travel. Cash flow is huge when selling a business and is probably one of the most important factors in determining worth; you’ll want to do everything you can to boost these numbers starting about 3 years prior to when you plan on selling.
Retaining employees in the travel industry is important; oftentimes, customers feel like they have a relationship with “their travel agent”, not the firm they work for. When agents quit or switch firms, they often take their clients with them, which can be a blow to your cash flow and sales. The best way to retain your agents and thus retain their clients, is to take care of them. The first step in retaining employees to hire the right ones and develop relationships with them. Creating an open line of communication and a good culture in your travel agency will go a long way when it comes to keeping your agents. Unfortunately, many travel agents are under paid, prompting them to continuously seek new employment to get a better salary. Paying your agents a fair rate (whether base pay or commission) plus offering travel perks if feasible are two main ways to retain your top producers. As agents begin to build tenure with your firm, you’ll see your numbers go up as they take on more clients, increasing your cash flow and showing stability with buyers.
The appeal of using a travel agency is having access to discounted rates and special packages that would not be visible to you if you were booking directly through a hotel, cruise line, etc., while having someone organize your trip for you. To be able to provide special rates and packages, your firm will need to establish contracts with major travel providers. Having a variety of contracts allows you to offer several different types of travel accommodations, thus casting a wider net over your target audience. Having an array of contracts also gives you more marketing fodder, which can expand your reach online and bring in clients who may not have found your firm previously due to specific search terms on services you did not offer. Established contracts will attract buyers and travel agents due to the multitude of offerings at your firm and ultimately, more opportunities for sales.
If you have been thinking about planning the next chapter for your travel agency, we hope these tips have helped you get an idea of how to prepare. We recommend that business owners get annual valuations so that they can see how their business is doing, and can determine where it needs to go. Business valuations can reveal much more than a sales price about your business; oftentimes, they show owners where the holes in their business are and how they can improve issues prior to the sale. Ultimately, this knowledge will help you in the long run and make it easier to build, grow and sell your business. If you are ready to take that first step in planning your exit, we offer no-cost, no-obligation valuation services to business owners in the Southeast. Every entrepreneur understands the value in planning for the unknown and planning your exit is no different.