This review discusses how to sell an audio and film company. Moreover, we highlight the best way to determine your audio and film company’s worth and the importance of working with a business broker throughout the process.
About The Audio and Film Industry
Audio and film companies primarily engage in providing audio and video production services for motion picture companies, television networks, and TV stations. This industry also includes post-production companies, video production companies, film equipment companies, and sound design companies. Below is the most recent industry data, provided by Business Reference Guide:
- There are approximately 33,000 audio and film companies in the U.S.
- There was a substantial decline in annual growth (-8.2%) for the audio and film industry from 2018 to 2023
- The audio and film industry generates $1.1 billion in annual revenue
- The annual profit for the audio and film industry is $92.8 million
- Experts predict a sizable increase in annual growth (2.3%) from 2023 to 2028
At first glance, the decline in annual growth over the past five years is alarming. However, the majority of the decline was due to closures related to the COVID-19 pandemic. Although a bounce back is likely, digital distribution and the trend among studios to replace intermediary distributors may halt a major industry bounce back.
How to Value an Audio and Film Company
There is, unfortunately, not a significant amount of data with audio and film companies. Consequently, rule of thumb data is less reliable. However, the most accurate rule of thumb you can apply to get a general sense of your audio and film company’s value is with annual gross profit and net sales. You can use these acquisition multiples:
- Audio and film companies sold for approximately 1.44 times their annual gross profit and approximately 0.97 times their annual net sales
We do not recommend using these multiples as an absolute strategy; there are many factors that you should also consider that may not show up on a financial report, such as your geographic location, the diversity of your sales, and your reason for selling. Of course, your financial data still plays a key role. Notably, your business broker will determine your seller’s discretionary earnings (SDE) and your earnings before interest, taxes, depreciation, and amortization (EBITDA). The goal is to determine your fair market value (FMV) via a market approach to business valuation.
A Step-by-Step Guide to Selling Your Audio and Film Company
The sales process for audio and film companies is complex. However, your business broker should ensure the sales process is simple and easy. To help you gain a general understanding of the sales process, we explain the nine most notable steps below. These steps include:
- Hire a business broker
- Determine your fair market value (FMV)
- Plan your sales strategy
- Prepare all of your documents
- Market your business
- Receive offers
- Negotiate a deal
- Due diligence
- Close the sale
Be mindful that the sales process may look different for your business. No two businesses are the same, and your sales strategy should be entirely personalized according to what works best for you.
Step 1: Hire a Business Broker
The sales process for audio and film companies has many complex steps. Your business broker helps ensure the process goes well and handles much of the complexities for you, including finding a qualified buyer. Be sure to choose a business broker who has experience (preferably one with experience within the audio and film industry).
Step 2: Determine Your Fair Market Value (FMV)
After you select a business broker, they should provide a market-based business valuation that details the worth of your audio and film company (as discussed above). The goal is to determine your fair market value. This is essentially the figure you expect your business to sell for on the open market. Your business broker determines your FMV by analyzing recent sales data within your industry.
Step 3: Plan Your Sales Strategy
Next, you should plan your sales strategy. A structured process with clearly defined steps and timelines helps ensure you maintain organization throughout the process and sell fast and for optimal value. Your sales strategy should include your advertising and marketing methods, goals for the sale (i.e. the buyer must keep certain employees), and other important details related to the sale.
Step 4: Prepare All of Your Documents
You can save time and stress by preparing all of your audio and film company’s financial, legal, and operational documents ahead of time. Your business broker can provide you with a list of documents you need to collect from your financial institution, insurance provider, etc. Notably, these documents may include (but are not limited to) tax returns, profit and loss (P&L) statements, balance sheets, insurance policies, lease information, and a list of your audio and film equipment.
Step 5: Market Your Business
After you determine your company’s value, plan your sales strategy, and prepare all of the documents you need, you are then ready to market your business and find a qualified buyer. Your business broker understands how to bring your business to the market in a confidential manner via private networks.
Step 6: Receive Offers
This is where working with a business broker is essential. They leverage databases, networks, contacts, and more to connect you with a buyer who is willing to pay fair market value. You may receive multiple offers for your audio and film company, in which case you will need to promptly review the details of each offer and screen the buyers. Do not worry, your broker handles this process for you as well, keeping you informed throughout the process.
Step 7: Negotiate a Deal
As you receive offers, you will naturally enter into negotiations with qualified prospective buyers. Of course, the sales price is the main detail you may negotiate. However, other details may be important for you, such as maintaining your long-term goals and keeping employees that have helped you grow. Contingencies are discussed during this stage as well.
Step 8: Due Diligence
After you select a buyer for your audio and film company, the due diligence stage begins. This is the time after the letter of intent (LOI) is signed and before the sale closes. Consequently, you want to move quickly through this process to reduce the risk of a deal falling through. The seller will request financial, legal, and operational documents during this stage.
Step 9: Close The Sale
Now it is time to close the sale (congrats!). However, the work is not done. You will need to bring certain documents with you to the closing table, such as a copy of your lease and insurance policy, employee details, and the purchase agreement. Your attorney will attend the closing to conduct a final review of the purchase agreement. In some cases, the broker of the deal may attend as well to ensure everything goes smoothly. The business (and ownership of the business) is officially transferred during this step as well.
You should also check: How to Sell an Ambulance Service Company
Are You Considering Selling Your Audio and Film Company?
We help audio and film companies (and related business types) sell for fair market value (or more). We have helped hundreds of businesses sell over the past decade. If you would like to learn more and discuss your exit strategy, schedule a consultation call today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!