How to Sell A Graphic Design Business

Selling Graphic Design Businesses

Graphic design businesses creatively produce websites, marketing and promotional materials, logos, and product packaging for customers seeking to promote their branded identity. Often times, the owner functions as the lead product designer of the company, particularly in smaller boutique agencies. When it comes time to sell a graphic design business, the owner should take measures to reduce the level of owner-dependency by training and hiring staff to take on their responsibilities and relationships with customers. Further, the owner may create a transitional plan outlining the free training period offered to potential buyers as well as tangible steps outlining how customer accounts will be properly conveyed to the buyer. The smooth transfer of the customer base to the buyer is often the most important component when valuing and selling graphic design business.

Valuing Graphic Design Businesses

Graphic design businesses are generally valued as a multiple (2-3x) of its most recent annual Seller’s Discretionary Earnings (SDE) or adjusted owner benefit. The SDE represents the owner’s economic profits or the net profit plus the owner’s salary plus economic benefits that the owner receives from the business. The most recent financial statement (such as a tax return or profit and loss report) should be carefully analyzed by an experienced business broker in order to include all of the economic benefits and adjustments necessary to reflect the true owner-earnings of the business. This is best accomplished when the financial statement is organized, transparent, and accessible for the last three fiscal years. The valuation range of a graphic design business depends on a host of factors including the level of owner-dependency (the more absentee the higher the multiple), historical growth rate, special niche, and transferable competitive advantages that sets it apart in the marketplace.

Locating the Right Buyer

  • The overwhelming majority of buyers seeking to acquire a graphic design business are individual entrepreneurs with a background in graphic arts design or an established graphic design business looking to expand their operations through an acquisition.
  • Individuals with a background or skills in graphic arts design make excellent buyers since they can often assume the role of the owner after a reasonable transitional period.
  • During the transition period, they may meet with key customers and staff members while assuring them that the level of customer service and quality design work will remain intact.
  • Moreover, a buyer able to replace the owner’s role as the lead graphic designer will maintain the same level of adjusted owner benefit since they will not have to hire replacements to subsume the owner’s active role.
  • If the owner does not have an active role in the business, then a buyer willing and able to function as the creative head of design is likely to substantially increase adjusted owner benefit by cutting expenses and/or expanding the customer base.
  • Local or national competitors also make excellent buyers of graphic design firms since they already have the infrastructure and staff needed to replace the owner’s role and ensure the retention of the customer base.
  • The competitor may be a national brand seeking to strengthen their geographic reach or a local design firm seeking to expand into the acquired company’s special niche.
  • For example, a large graphic design business specializing in creating marketing materials and websites for accounting firms may seek to purchase a niche graphic design firm specializing in designing logos and brochures for local legal firms.
  • By leveraging staff and infrastructure, competitors may earn a high Return on Investment (ROI) by acquiring a competing graphic design firm.

Keep Sale Confidential

Hiring an experienced business broker is essential to keeping the sale of a graphic design business confidential from staff members, customers, and suppliers. A confidential sale involves the placement of ‘blind ads’ which shield the identity of the business from the public. Prospective buyers must sign a Non-Disclosure Agreement (NDA) to protect the seller’s confidentiality and financially qualify to protect the seller’s time and energy. The greatest fear of most owners of graphic design firms is word of a pending sale leaking out to staff or customers, so it is essential that confidentiality is observed until the closing occurs. If a buyer desires to meet staff members prior to the sale, then the the terms must be delicately negotiated and handled with care in order to prevent staff members from leaving before the closing. Such meetings usually occur as a final contingency of closing and after deposit money goes ‘hard’ and becomes non-refundable.

Non-Compete Agreement by Seller

An important issue when selling a graphic design company is the terms of the non-compete agreement given by the seller to the buyer. The issue of the non-compete is especially important when the seller functions as the ‘talent’ or main designer and has close relationships with customers and staff. Buyers will want as broad a non-compete as possible to prevent the seller from starting their own design firm or working for a competing firm. Naturally the buyer wishes to preserve their customer base and goodwill by preventing the seller from possible encroachment. Conversely, the seller will want to limit the scope of the non-compete in order to preserve their freedom of employment. Terms of the seller’s proposed non-compete should be given to prospective buyers in the initial stages of due diligence so there are no surprises down the line.

Selling a graphic design firm involves thoroughly preparing for the sale ahead of time with the assistance of a professional business broker to ensure a maximum purchase price. The valuation of a graphic design firm largely depends on its growth trajectory, scale, non-compete agreement given by the seller, and finding the right strategic buyer to effectuate a smooth transfer of customer goodwill.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.