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Even in this inscrutable economy, PR agency directors and owners are still earning a nice living, clients are remaining and talent is plentiful. Why fret about profitability?
Well, I'm here to tell you that attention to performance metrics can spell the difference between survival on a rainy day, sustaining the longevity of your top people and--most importantly--monetizing your biggest asset when and if it's timely.
To give you an idea of how enormously significant these metrics are to your life, let's look at your worth on today's market. If your agency is marketable at all, it's probably worth five to 10 times recast EBITDA (earnings before interest, taxes and depreciation plus any bonus you're taking as owner salary).
In investor relations, we have a vital tool called a PEG ratio. It's your price/earnings multiple divided by current growth rate. If your recent EBITDA is one-tenth of the theoretical sale price you seek in selling, and if your profits are growing at 10% per year, you have a PEG ratio of a perfect 1.0, and the market would judge you as fairly priced. But since your stock is private and illiquid, it may rate a 10X multiple only if you're a 30/30--an agency with a 30% margin and 30% average annual compound growth rate.
Whatever your multiple and value today, the decision to merge or sell should be rational, not emotional. (I tried to block out any emotion when I sold The Financial Relations Board in 1999.) If you now take...