![\"Mark](\"https:\/\/ik.imgkit.net\/3vlqs5axxjf\/TW\/ik-seo\/uploadedImages\/All_TW_Art\/TWSTF\/MarkPestronk\/Mark-Pestronk.jpg\" "\\"Mark")
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Q:<\/strong> Last year turned out to be a very good year for my travel agency; we achieved record sales and profits. So I was thinking that now may be a good time to sell my agency and retire. However, 2023 looks to be even better, so maybe I should wait another year and get a higher price. What’s your opinion? In any case, I know I need to start by finding out the value of my agency. Can you help me?<\/em><\/p>\n A:<\/strong> With so many financial experts predicting a recession in the near future, I wouldn’t bet that 2023 will turn out better than 2022. Since agency acquisition prices reflect your most recent financials as well as the general economy, now may be a better time to sell.<\/p>\n The evaluation formula that makes the most sense to seasoned buyers is one based mainly on the profits of an agency for the last year. By “profits,” I mean recast profits, which I define by starting with your bottom line (known as “net income” if you have the Trams Back Office system).<\/p>\n Next, you add back all of the following if they appear as expenses on your income statement (aka profit and loss or P&L statement): a) owner’s compensation above what a larger agency might pay a general manager employee; b) all other expenses that benefited you personally and that a larger agency would not have allowed a general manager to take; c) all expenses that weren’t ordinary ones in a typical year of operation; d) depreciation and amortization expense; and e) 401(k) or similar expense.<\/p>\n Once you figure out your recast profits for 2022, then you multiply the total by a generally accepted multiple in the travel agency industry. Today, the multiple ranges from 3 to 6, but the average seems to be about 3.5.<\/p>\n Factors that influence the multiple include your sales volume, sales mixes and revenue. For example, a larger agency will be worth more than a smaller one, all other things being equal, and a high-end, leisure specialty will enhance the value of your agency.<\/p>\n Finally, a good evaluation also considers other factors pertaining to the agency, such as the ratio of salaries to total expenses, length of your GDS contract and any over-reliance on a small number of large accounts. These are just a few examples of the kinds of factors that sophisticated buyers examine before making an offer.<\/p>\n Contrary to popular belief and what other experts may tell you, some irrelevant factors would be your financial results for years before 2022, whether you have a brick-and-mortar business or are home-based or whether you have a lot of ICs and few employees. <\/p>\n If you are uncomfortable with doing your own evaluation or want to present a prospective buyer with a polished product, there are consultants, accountants and attorneys who can do it for you.<\/p>\n Once you establish an evaluation, you need to consider payment terms and taxation, which I will cover in future columns.\u00a0<\/p>\n