Why Use an Intermediary to Sell Your Agency?

When you’re faced with the prospect of selling your agency on your own, you may think you don’t want anyone else involved. After all, who knows your business better than you do? But choosing to do it all by yourself (or with just a few key players at the agency) doesn’t merely create extra work for you and the staff. When you’re emotionally wrapped up in your business (no matter how much you may want to sell), it can ultimately lead to bad decisions during a very critical time. See how using an intermediary can take the pressure off of you, and ensure the transition goes as smoothly as possible.

Specialized Knowledge

You know your company inside and out, and the entrepreneurial spirit naturally runs through your blood. But how much do you really know about the details of selling off a company? How well do you understand the negotiation process before you agree on final terms? No matter how skilled you are in normal business transactions, selling an agency is an entirely different ballgame. Intermediaries live and breathe the art of the sale, and you can turn their knowledge into your gain.

Clearer Expectations

There’s what you think your company is worth, what an assessor says that it’s worth, and what a buyer is willing to pay for it. Sometimes these numbers match up, but not always. An intermediary has the experience to help you understand the real market value of your business. Mergers and acquisitions firms use their own professional past plus their databases to get a larger picture of how your business is relevant to the public and to its competitors. Whether or not you over- or underestimated the value of your business, it helps to have a firm footing in reality before you take another step forward.

Better Preparation

Unfortunately, it’s common for agencies that sell on their own to be completely unaware of how they’ll handle the details of the actual sale. A solid exit strategy will help immensely, but it won’t solve all of your problems. Agencies not only point out where the firm can do more to prepare, but they can also give practical advice as to how this can be done. An intermediary may not know your business personally, but they do understand the industry. They can look at everything from your staff size to your revenue before laying out how it can all be used to get the highest possible dollar value for your business.

Objective Services

An intermediary isn’t only going to make decisions based on the bottom line. They’ll ask the right questions that go far beyond finances. Whether you have certain demands about how the staff is treated by the buyer or how business will be handled with your existing clients, an intermediary is there to ensure that your plans go according to plan. However, they’ll also be searching for ways to increase the value of the sale whenever possible. Sometimes owners have a tendency to be too involved in daily operations, and even just a few stray objective observations can reveal potential problems that need to be addressed.

Financial Details

Lenders know what they want, but agencies often aren’t aware of this. When a buyer is offering the exact price you want, an intermediary can help you make any adjustments you need to ensure the deal goes through to the buyer. You can’t control what the other parties do, but you can structure your exit strategy to ensure compliance. The reaction of the lenders is often a good way to gauge exactly how much money you’ll take home. An intermediary can help you figure out how to handle your infrastructure for the benefit of all parties involved.

Tips Before You Hire

Contacting an intermediary and asking for a valuation is generally the first step, and it’s a critical time to assess their skills and dedication. Look for someone responsive and experienced, but also look for intermediaries who have a solid understanding of how the industry and the market work together. They’ll be the ones finding buyers and facilitating the details, so you need professionals who can do the job right!

Why Having an Exit Strategy is Vital

Choosing to sell a company is never going to be an easy decision. Can you get more? Do you want to cede control? Will the buyer do what they say they’re going to do? These questions are the underlying reason why it helps to have an exit strategy in place. Here’s why you need to at least sketch out a plan as soon as you can — preferably the moment you get your business off the ground.

A Clear Path Ahead

The focus of your business is allowed to change or pivot as you see fit, but a hazy focus can also kill a company quickly. Whatever your goals are, be honest about them to yourself and your employees. Are you hoping to be bought by a certain company? Will you be using the money to secure your family’s future? Do you truly understand what it will mean to let another company take over? Answering these questions in detail makes it easier for you to see what’s down the road of course, but it can also make it easier for you in the short-term as well.

Multidimensional by Nature

When you start the company, you likely have a certain idea of how you want to come across to the public, and another idea of how you want to come across to other businesses in your industry. All of the channels you use, the points of contact, and the major decisions you make should stem from the original idea. Marrying the original idea to the end goal will make your vision that much clearer though. It can even make your brand profiling and media strategies run a lot smoother once everyone is on the same page and working toward the same eventual outcome.

Testimonial Warnings

Those who own businesses state that not having an exit strategy can ultimately create a lot of extra work. Neglecting it will lessen your chances of success, lengthen the transition period should you choose to sell, and typically net you less money for your company. Startups today may end up selling just 12 months after they open their doors. Even if it takes your company several years to sell, it helps to understand how you want everything to look once you do.

Easy as 1, 2, 3

Exit strategies won’t necessarily take away from the more pressing matters that your company faces on a daily basis. When you approach the strategy the same way you might approach a new marketing idea or budget, you’ll find a lot of similarities. The key is to think about the situation from a variety of angles. The original questions about what you want are crucial, but you’ll want to look at your strategy through the eyes of a shareholder, the seller, or an investor too. Once you have all those ideas in your mind, start laying down the groundwork that will eventually become a plan in case of evacuation. Strategies can be as simple as wanting to sell the business for a million dollars within 5 years.

Potent and Profitable

The biggest reason why you should consider having an exit strategy is that it may do more to make money than literally any other decision you make. This is the time to get cash for everything you’ve worked to create. In fact, a well executed plan could net your company 50% more of its original valuation. To maximize your profits, start doing a little research into those you think may ultimately want to buy, or let someone else give you a hand. Certain parties may only work with a few types of exit strategies, and a lack of cohesion can take down even the most successful of businesses.

Final Thoughts

Experts and strategists say that it’s not enough to build a great product or service. You need to understand how your business fits into the market, and what exactly you’re bringing to the table. Exit strategies made at the start of the business can make the staff and management team feel far more powerful because everyone is on the same page. It can even be a motivating factor to get more people to believe in what the company is doing, and where it’s going.

Fair Value vs. Fair Market Value of Your Agency

Deciding on a valuation, whether it’s a business, real estate or intellectual property, can be a challenge. You know that there’s an inherent and objective value in the marketplace, but other — less tangibles — can weigh in on the determination of value. Understanding the difference between fair market value and fair value will both help you get a fair price for your agency and help the process of finding a buyer and sealing the deal that much more seamless.

Let’s explore the difference between the two.

Fair Market Value

Fair market value is the price at which a buyer who wants to buy and seller who wants to sell would make a deal if the there are no factors compelling the purchase or sale, respectively. In the case of fair market value, it’s assumed that both parties are well-informed and able to make an objective decision.

Fair market value is the most widely used in the financial accounting world to determine the value of a business and is also accepted by the IRS as a representation of the value of your business. Fair market value is what you could expect on an unrestricted market.

It doesn’t consider any strategic value in buying or selling at a given price or by a given time. For example, whether or not the buyer can realize greater ROI in the company than its current owner wouldn’t be a factor. The buyer’s desire to buy because of the company’s ability to complement the buyer’s own company’s lines of business wouldn’t be considered. The seller’s need to sell because of market trends, litigation, liabilities, death or retirement of a majority shareholder would not be disregarded in fair market value. Any of these would represent a compulsion to buy or sell beyond the fair market value.

Fair market value would include the following as laid out in IRS Revenue Ruling 59-60:

  • Type of business
  • History of the business
  • Stocks
  • Financial statements to review liabilities, liquidity, revenues, etc.
  • Earnings potential
  • Goodwill and other intangible assets

Fair Value

Fair value is the price at which you you can sell an asset (or transfer a liability) in an orderly fashion. It does take into consideration the risk, strategies, advantages and disadvantages of both the buyer and the seller.

By contrast, we could say that fair market value is a value created in a vacuum with no external strategic consideration while fair value considers not only the value of the company itself, but also the value to one or both parties of buying or selling by a given date. Fair market value is the more objective price while fair value is a price that makes the most sense given the current situation and between a certain buyer and a certain seller.

Fair value has been ascending in popularity over the past two plus decades because it attempts to take valuation out of the theoretical and into the real world. It is accepted within GAAP (generally accepted accounting principles). As with anything in the world of accounting documentation of these intangibles and how you factor them into the fair value is key. Fair value is not a haphazardly obtained number.

How Fair Value Is Used

Fair value is often used when shareholders disagree about the value of the company. These disagreements arise from varying perceptions about the strategic value of selling the business by a certain time and for a certain price. In these cases, shareholders would first review the more objective fair market value and then add to or subtract from that valuation to account for strategic variables. With consideration for majority and minority share — and perhaps with external counsel advice on hand — these shareholders would agree upon a fair value.

If they already have a buyer, then they would take this value to the negotiating table. If they’ve not yet placed the company on the market, then they would make the company available in the marketplace at this price.

Determining the Value of Your Company

For more information on obtaining an insurance agency valuation, check out our easy to follow yet thorough agency valuation video. If you need assistance determining the value and successfully selling your insurance agency, please give us a call: (321) 255-1309. We look forward to learning more about your company and helping you sell your company at a value that makes sense for you.

Knowing the Market Value of Your Insurance Agency

The market value of a company is as much wrapped up in the current revenue as it is in past success and future projections. There are so many factors to take into account that the numbers are easy to doubt. For example, two firms may bring in the same amount of revenue, but one may be slowly building momentum while the other one has steadily lost income or accumulated debt. Leaders may value a company at much higher than its worth, while outside companies ballpark their valuations far lower than an agency would like. Agencies need to go the extra mile when it comes to determining their value, or they may lose more than they bargained for.

Know the Goals

Whether you need to get an ESOP report for the stakeholders in the firm, you’re attempting to get a loan for expansion, or there’s a corporate dissolution, the value of the firm allows people to make the best decisions during a transition. Problems generally arise when evaluators either leave out certain information or discount its value, or .they include irrelevant information that confuses the reader. Strategic value, fair value, and liquidation values all have different requirements to factor in. Investors or companies may only care about one part of the business rather than the full enterprise.

Additional Considerations

Once you know why you need it, which parts of the company need to be evaluated, and who will be reading the report, analysts will have a better idea of exactly what everyone on both sides of the equation will want to see. The market value may be as much determined by the purpose of an agency as it is by its assets. For example, your identity theft insurance may be on the rise while home insurance sales are on the decline. Most agencies need to know their market value because the businesses will eventually be sold on the market. In this case, hopeful buyers will want to understand what their future will look.

Getting Help

Determining exactly how to handle a valuation is fraught with complications. While you may understand that a buyer is looking for different information than a bank, it can be difficult to pin down exactly what the receiver of the report will want to see (and how they want to see it.) One of the best ways to check on value is to look at what other comparable agencies have been sold for in the past. After all, a number on a piece of paper is worthless unless there are people willing to pay for it. Agency Brokerage Consultants has all the figures stored in a proprietary database, and we can help you decide the other data necessary to arrive at a realistic valuation.

Doing the Legwork

Getting the information together isn’t easy, and the stress of finding and organizing multiple documents can make it easy to just rely on the pure value of commissions. This is a shortcut that we strongly suggest you skip though. It may take time, but it’s absolutely worth it to do the legwork. Even thorough analysts may have a difficult time agreeing on an exact number due to the sheer scope of a business. Simply using the bottom line can discount the potential of the agency, and cause it to be sold for far under what it’s worth. It also ignores risk factors that may cause the purchaser to far overpay. While each business is different, leaders generally need to get business reports together plus all financial information, including bank statements, commission information, and tax returns.

State of the Report

Good market valuations won’t just give a final number, but will give a full state of the company. By putting financial and staff information in context, readers will start to get a sense of just what the company has to offer its potential customers and buyers. Agency Brokerage Consultants has perfected our method of valuing smaller to medium-sized insurance companies. It’s our job to ensure total compliance so each valuation gives the full picture to the interested parties. We analyze the situation as much as we analyze the numbers, so you can be sure you’re getting the right answers.

How to Retain Insurance Clients After a Merger

Keeping accounts after a merger can be a daunting task to agents and management alike, but it’s not impossible. What’s more, high retention rates are the key to financial success after the dust has settled and a new routine has been established. The number of the clients that follow the firm is directly tied into profits, and a strong incentive for both the seller and the buyer to make the transition with as little disruption to their accounts as possible. Find out more about what’s normal during a merger, and how you can maximize retention.

Normal Turnover

Every year on average, about 15% of the staff and 5% of the clients in a firm will leave: don’t expect the numbers to fall in the event of a merger. Management’s goals should be to keep the numbers even, and not to chase after every person who has decided to move on. The most challenging time will be right after the transition of course, when employees are unsure of how they’ll fit into the new organization. Should employees leave though, clients may find themselves confronted with rational fears about meeting a new agent and being forced to deal with a new power structure.

Addressing Concerns

Some clients will be able to go with the flow, cheerfully keeping their account and adapting to any new protocol adjustments. Others will raise their concerns, expecting detailed answers that prove they’re still highly valued as a respected client. Some will simply leave despite anyone’s reassurances, fearful they’ll be swallowed up in the chaos as everyone tries to work out who’s who and what’s what. And finally, there will be some clients who think that they can handle the change, only to find out that the disparity between one company and the next is too great to handle. Assuming the acquiring firm doesn’t significantly raise prices for existing clients, it’s typically culture changes that is the deciding factor for clients to either stay or go. To inspire trust, the acquirer has to show they’re honoring the traditions and values of the original company as much as possible.


Communication is key during a merger, and it matters how the information is delivered. Clients will want to know about the details, so they can address their own budget and time concerns. If customers can’t form realistic expectations, the merger will have a very difficult time moving forward. And make no mistake about it: the natural response will be to reach for white lies to appease them. Clients want to hear that there will be no hiccups. However, if they run into one (or several) down the line, they will be even more angry than if they were told upfront about the potential snags in the operation.

Larger clients should always be told face-to-face, but every client will need some degree of hand-holding during the merger. Scripts can certainly help in terms of getting the language correct, but they may also backfire if an employee sounds too robotic or unconvincing. Also, only changes that affect the client should be discussed. The client doesn’t need to be concerned about peripheral decisions that won’t affect their personal business.

The Importance of Loyalty

Thankfully, clients are more likely to stay if they’re loyal to their insurance carrier, even in the event of a merger. This is because they have developed such good relationships with the people on the other end of the transaction that they’ll follow their trusted advisors wherever they go. Retention rates will fall only when the acquisitions company devalues that loyalty, and starts making drastic changes that shatter the fragile bonds. Transition lengths will vary based on the size of the two companies, but they will normally take longer if the clients aren’t given enough ways to stay in touch with their original points of contact.

Finding Help

There are complicated times ahead for everyone with mergers and acquisitions, which is why hiring a company like Agency Brokerage Consultants can be the answer to retaining clients. A third party is sometimes the only way the primary parties can find the common ground between them, as opposed to concentrating on their differences. Our goal is to make everyone comfortable with the changes as quickly as possible, so the company can move forward toward a brighter and more profitable future.