Paul Davies of OneTeam Chartered Accountants says long-time agents who have weathered the Covid storm, followed by five years of steady profit growth, are justified in anticipating a healthy price for their businesses.
However, those who have not already put a strong succession plan in place may find the transition into retirement is not as straightforward as they hope.
‘The question is: who is going to buy the agency? The first and best option is someone on the staff who understands the business from being in it. The second is a buyer from the wider industry and the third is someone from outside.’
Davies says a key issue for owners considering a sale is that a profitable business is not necessarily a saleable business.
‘A buyer isn’t simply buying the revenue or the profit. They are buying the likelihood that the revenue and profit will continue after the existing owner leaves.’
That means buyers will look at how dependent the business is on its owner, the strength and experience of its staff, the quality of its client relationships, repeat and referral business, supplier relationships, systems and processes, and the underlying profitability of the agency.
‘If clients are coming primarily to the owner, rather than to the business, that can create an issue when it comes time to sell.’
Davies says this concept of the ‘transferability of earnings’ is likely to become increasingly important.
‘The question for a buyer is not just what the business earns today. It is how much of those earnings will still be there when the current owner is no longer involved.’
The third option — an external buyer — can be difficult because those with no knowledge of the sector face steep learning curves before they can meet client expectations.
‘Along with the traditional essentials — the bond, the capital requirements, management of staff, accounting, setting targets, managing commissions and overrides – the modern travel professional needs to have deeper knowledge than ever of destinations and experiences that match their clients’ needs, preferences and travel styles. If they don’t have that, they don’t have any advantage over what their customer can find online.’
This can make an external purchaser more cautious and potentially reduce the price they are prepared to pay.
Opportunities exist – travel demand strong
Despite challenges around selling travel agencies in the current environment, Paul Davies of OneTeam Chartered Accountants says options and opportunities certainly exist.
‘Some brokers may consider banding together and purchasing an agency — it’s an avenue worth exploring. Also, looking again at succession within the business makes sense.’
Industry buyers may also be able to bring economies of scale, management expertise and additional resources to an established agency. For owners, the objective should not simply be to make the business profitable, but to make it capable of being successfully owned by somebody else.
He says the challenge for owners isn’t a lack of demand for travel.
‘The last five years have been strong for travel businesses and that looks set to continue, according to (economist) Tony Alexander’s latest spending intentions survey. International travel remains a highly desired commodity, which augurs well for both established businesses and newcomers to business ownership.
‘The opportunity for travel business owners, therefore, is not simply to sell their agency but to build a business that someone else can successfully own.’
For those considering retirement over the next few years, succession planning should start now — while the business is profitable, the industry outlook remains positive and there is still time to develop the next generation of owners.
‘The risk is that owners wait until retirement is imminent before thinking about succession. By then, there may not be enough time to develop an internal successor or reduce the business’s dependence on the owner.’
For owners who have a suitable employee within the business, gradually transferring responsibility and client relationships can provide a natural pathway to ownership, Davies adds.
‘Most of the people who work in the travel industry love what they do. So those who have been successful need to find someone else who has the joy of being in travel and wants to be part of the sector’s next generation of leaders.’
