Whether you’re an agency owner or an independent contractor, succession planning is a must. Many people think the time for succession planning is when you want to wind down your business; but in reality, the time for succession planning is now — no matter if you are in the beginning, middle or twilight of your career.
Succession planning takes many different shapes and there is no perfect plan. What is best for you might not be best for your colleagues. Here, we’ll explore different scenarios so you can begin to think about what is best for you.
Succession Planning for Agency Owners
As an agency owner, you have a valuable asset: your agency. But how valuable is it? This depends on many factors, including sales revenue, the nature of the mix of business (leisure and corporate), corporate contracts, intellectual property (trademarks), the agency’s goodwill, your book of business, the trajectory of your business, employee/independent contractors, relationships with networks and consortia and, in all likelihood, you. Valuing a travel agency is a complicated process; it’s not purely an accounting exercise. All the items above are considered, and each agency stands on its own.
Succession planning for an agency can take the form of an acquisition, passing the business on to a family member or — as is often the case — finding that key employee/IC and transitioning your business to them. If you are thinking of selling your agency, questions to ask yourself include: Who will you sell it to? How much is it worth? Will you stay on for a transition period (sometimes up to two years)? Will it be an asset purchase or a stock purchase? Will it be all cash at closing (not likely) or an earn-out over time? Will you have a noncompete provision as part of the deal?
Succession Planning as an Independent Contractor (IC)
As an independent contractor, you might be a sole proprietor or you may have set up an LLC to protect yourself. Many of the factors above apply to you, as well. Succession planning allows you to take control of your business and make sure your customers will always be well-served even when you may not be able to do so yourself.
If you are an IC, do you have a plan in place in the event that you become temporarily incapacitated? Who will look after your bookings? Answering these questions is a form of succession planning in the short term. And on a more serious note, what about when you die? Does your operating agreement have a provision as to how this asset will be dealt with? Maybe you have included a provision in your estate planning documents (a hearty topic for another article).
If you are an IC, do you have a plan in place in the event that you become temporarily incapacitated? Who will look after your bookings? Answering these questions is a form of succession planning in the short term.
Advice From a Travel Industry Lawyer
An experienced travel lawyer can help you navigate these issues and many more.
The best advice is that it is never too early to prepare. Some of our clients are very sophisticated and have Excel spreadsheets on everything, while some are the opposite — pads of paper, notes everywhere and boxes of old documents. No matter which category you fall into, you should start to think about the sales pitch you’d make to a potential acquirer. How can you stand out? Is it your social media presence? Are you the only game in town?
If you are planning to pass your agency on to a family member, ask yourself: Is that person as interested in travel as you are? Are they in the business? We’ve seen many multigenerational travel agencies — some flourish, and some sink.
Why the difference? I think it’s fairly obvious: This business isn’t for everyone. It takes a special person to be willing to spend the time, have the knowledge and, more importantly, hold the drive and determination to run a travel business. Remember: Most bookings are six to 12 months out, so there may be no immediate money coming in the door. You might have multiple children who are interested in taking over, and you might need to make a difficult decision.
This business isn’t for everyone. It takes a special person to be willing to spend the time, have the knowledge and, more importantly, hold the drive and determination to run a travel business.
Now let’s consider the key employee/IC who might be your heir apparent. Do they have the money to buy you out? Maybe — but this isn’t common. So, will it be a slow, multiyear turnover, with the person essentially using “sweat equity” to assume ownership? This is often the case in our industry. Will there be a gradual swing in commission splits to allow you to “get paid” for your business? Perhaps you will essentially finance the purchase (with the right to take it back over if things don’t go well with certain established metrics).
The best people to help you navigate these important and complicated issues might be accountants, attorneys, business brokers and colleagues — and maybe even AI (I’m only half-joking).
I've just given you a lot of information to soak in, but let's go back to the very beginning. The best place to start for succession planning is to make a list of why your agency or business is valuable. That serves as a simple task, but it gets you thinking: What differentiates my business from others? If someone is looking to buy an agency, why should they pick mine over someone else's? It’s important to clarify why yours stands out.
Don't put it off any longer: The time for succession planning is now.
Meet Jeffrey Ment
Jeffrey Ment, of The Ment Law Group, currently works as a travel law attorney and previously worked as a travel advisor, airline sales manager and tour guide. For more than 29 years, he has represented individuals and companies in the travel industry.
Have a question for Jeffrey? Send an email to letters@travelagewest.com.
