Simultaneously Managing the Business and Sale Process

Once you know you know you’re ready to sell the agency, you’re likely to have a lot of questions about what to do next. Keeping customer and employee morale up during this time period isn’t going to be easy to do, which can make managing the office a nightmare. There are ways to soften the blow and cushion the landing so that current business isn’t (as) affected by the sales process. It may take a little finesse and understanding, but it is entirely possible.

Honesty Is the Best Policy

As difficult as it may be for certain people to hear about the sale, it’s usually a smart move to be upfront with employees as soon as possible. Letting people adjust their expectations can be the key to reducing hurt feelings and subverted expectations. But even if this sale is strictly business to you, it’s still good to consider the needs of the people who work at the agency. You’ll probably still need their cooperation when it comes to all the changes coming down the pipeline. Your CFO or finance director should be kept fully in the loop so they can help you organize the financials before the sale. And for goodness sakes, start pulling back from the office as much as possible to really drive the point home. Your employees will need to get used to you not being there (and you need to do the same!)

Update Your Exit Strategy

Once you have a firm offer on the table, you should update your exit strategy. The more specific it is, the more likely it is that everything will be followed according to plan. Even if you haven’t had an offer, you may want to start digging into the current document. Businesses can change a lot in even a few months, so there may be clauses or directions that are no longer relevant to how the company is structured now. This is also one of the best ways to preserve the company culture that you’ve no doubt worked so hard to build. The buyer obviously wants your company for a reason, so it’s important to stay true to your principles even as you get ready to start the next chapter of your life.

Plan Ahead

If it’s difficult for your employees to keep up with customer demand on a normal day, then it’s not going to get any easier during the sales process. Whether the majority of the customers are going to be kept by the current staff or they’re going to be mixed and matched with other employees, the stress can make it difficult to be a customer during a sales period. Your business isn’t going to be worth as much to the buyer if you devalue your current relationships as you get ready to hand over the company. Part of this problem can be solved when you overestimate the amount of work it’s going to take to keep the business going during a sale. Talk to employees about what’s going to change, and how you’re working to alleviate the pressure for them as much as possible. You may even want to ask for their suggestions (just make sure you implement them too!)

Get Help

A consultant won’t be able to solve all of an agency’s problems during a sale, but they can take care of thousands of tiny details that would otherwise fall on an owner and their staff. Even one mistake can kill a deal or land an owner in a lengthy litigation case that could have easily be avoided. Agency Brokerage Consultants has handled countless agency sales, and we’ve seen how often owners falter under the weight of trying to keep their business going in the middle of the sale. Let us step in to give advice, handle financial questions, and square away personnel matters. We offer a fresh eye and unbiased opinions — both of which are invaluable during an emotional transition. We oversee it all so you can concentrate right up to the moment the ink has finally dried.

Top Things to Consider When Buying an Insurance Agency

The goal of any organization is to grow. When you’ve done everything you can do to grow your business internally, sometimes, it’s time to look for opportunities outside of your own organization. In the insurance industry, acquisitions can be quite lucrative but only if you do your due diligence and know what you’re getting into before you pursue the process in its entirety. Of course, you may just be starting out in the industry, looking for a way to get your feet wet by jumping right in. In any case, it may be the right time to buy an insurance agency, but the idea isn’t something to be taken lightly.

Although there is certainly some trial and error in the purchasing process, there are a few things you should consider before you buy an insurance agency. The following are a few of the top elements you’ll want to weigh before heading into any acquisition:

1. Why is the Seller Selling?

There are plenty of reasons a fruitful owner may be looking to sell; perhaps he or she is moving out of state or ready to retire. In these cases, you may be set up for success with a thriving business. On the other hand, if the agency has been losing money for many years, it may not be worth your time, energy, and money. Of course, some people simply aren’t cut out to be business people, and it’s possible you could turn around an in-the-red business, but it’s best to know the seller’s motivation before you delve deeper into the process.

2. What is the True Value of the Agency?

While financials are of the utmost importance, it’s imperative to remember that not all assets can be recorded in profit and loss statements. When you’re evaluating the true value of the agency you’re considering purchasing, look at the following elements:

  • Profitability
  • Physical assets
  • Quality of existing employees
  • History of sales
  • Financial status
  • Risk management tactics

When you examine the big picture, you’ll have a better understanding as to whether this deal is right for you or not.

3. What Kind of Insurance Does the Agency Specialize In?

Some agencies don’t specialize in anything and are more of a one-size-fits-all type of insurer. Others are quite specialized, offering boutique services for certain areas. Reconcile your own skills and goals against those already established by the agency you’re considering pursuing. Will you be bored if all your clients are purchasing life insurance? Are you specialized in a certain type of homeowner’s insurance that’s uniquely relevant to certain parts of the country? If boating insurance is your passion, an agency in Kansas probably won’t fulfill your desires.

It’s important to understand what you do well, what you want to do in the future, and what the agency you’re pursuing has already established. In an ideal world, you’ll hit the ground running in an agency that already does what you do best.

4. How Will You Finance Your Purchase?

Unless you have cash on the table, you’ll probably be seeking a business loan. In most cases, commercial loans are pretty standard, but in the insurance industry, they can be harder to obtain because many banks will not lend against the in-force book of business insurance agencies hold. This obstacle can make it difficult to finance your purchase.

Seek the assistance of a firm that specializes in agency financing to set yourself up for success.

5. How Can You Make this Transition Easiest for Employees?

You don’t want great people to leave you because they’re scared of change. It’s a natural reaction, but it can be diluted with proper communication. Get to know the people who work for the agency now; understand their strengths, weaknesses, and fears, and communicate your plans throughout the process.

Communication is a great way to stave off fear and start your new business right—with seasoned team members.

The bottom line is that there are often more mysteries to mergers and acquisitions than meets the eye. If you have no experience in the industry, the dangers can be even greater. Without a skilled team of professional intermediaries and insurance business consultants at your side, you could find yourself in the midst of a buy that’s not worth your investment. If you’re considering purchasing an insurance agency,

Top Tips on Selling Your Insurance Agency

If you’ve already decided to sell your insurance agency, you should have at least a few questions on your mind. Maybe you saw some of the pitfalls when you were buying the agency and want to avoid them, or maybe you’re just not sure of where to even start. The truth of the matter is that you already know your business backward and forwards, but that doesn’t always make you qualified to sell your agency (if the hope is to get the best possible deal.) Use these tips to move forward with a little more confidence.

Plan Ahead

It’s not going to be easy to sell your agency no matter what circumstances you’re facing. If your agency is incredibly successful, you’re going to need to find a way to bring the big bidders to the table. But you’ll also need to find a way to make their desire work for your bottom line. This is often easier said than done because you’re trying to strike a very delicate balance without alienating anyone. If your agency is performing well but not spectacularly, you’re going to need to find buyers who can spot the potential of the business to boost them to the next level. It takes negotiation as well as inside knowledge to come to terms that everyone’s happy with.

Go Over Your Finances

Any potential buyer is going to want to check out the financial situation of the agency thoroughly. The due diligence process is designed to ensure they have the right numbers before taking over the agency, so there are no liability surprises later on. From the state of your trust accounts to the way your taxes were filed, any mistake or discrepancy could make them want to back out of the deal. There are also compliance regulations you’ll need to meet when it comes to the offered price. Your exit strategy must thoroughly address the financials to get the best possible net worth of the agency. The clearer all of your numbers are, the more likely it is that lenders and buyers alike will trust your next move.

Do a Little Studying

The real market value of your agency isn’t what the assessor says it’s worth and it’s not what you say it’s worth. The more research you do, the more you’ll be prepared when it comes to evaluating your offers. You may even be able to do a few last-minute adjustments to make the agency that much more attractive to various buyers. The new year promises to hold a lot of opportunity for sellers. The trends point to growth for a number of different kinds of insurance, and while there is some failure, the overall forecast looks great. You can absolutely use this to your advantage during negotiations. Enticing the right buyers won’t be simple, but it will be worth it.

Let Go

This is often one of the most difficult things for owners to do, but it’s necessary if you’re looking to sell the agency. No matter the reason is for selling the agency, it can be a traumatic feeling to part with it Maybe you want to spend more time relaxing or maybe you know there’s another business opportunity that’s better suited for you. But that doesn’t mean you want to abandon your staff and your clients to a heartless buyer who will destroy what you worked for. Regardless of why you’re selling though, these emotions may get in the way of your goals. Too much attachment and you may end up making unrealistic demands from buyers.

Get Help

This is probably the best tip you’ll get if you’re looking to sell your agency, if only because you probably don’t have a lot of time to devote to the sales process. An intermediary’s job is to bundle up all of the good things about your company and to smooth out any questionable areas of your business, but they do so much more than this. It’s the specialized knowledge they’ve acquired that really can’t be taught without experience. It’s their attention to detail and entirely unbiased opinion that makes them so valuable when it comes to selling an agency.

The Importance of Trust Accounts When Buying or Selling an Agency

trust account

Insurance agencies are often required to have active trust accounts as a means of separating and organizing any incoming funds. They’re used to prove to auditors that an agency has been paying agents and carriers appropriately out of the premium payments collected from their customers. But it’s not uncommon for insurance agencies to relax their rules on trust accounts, neglect them, or to discount their importance entirely. See how trust accounts should function in an agency and how they can benefit the agency — especially if you’re thinking of buying or selling anytime soon.

The Perils of Disorganization

Payments and remittances are staples of an insurance agency, but they have a tendency to spin out of control fairly quickly. An agency owner is supposed to treat premium payments as though they were the caretaker of the funds as opposed to the owner. By having a trust account for premiums and return premiums, agencies have the ability to keep their premium funds safe from creditors. It also ensures that there’s no mistaking the operating accounts from the trust accounts, and it gives agency owners more controls on the funds. When no one can take any money out of the trust account without the right documentation, it creates the paper trail the agency will need to stay above water during an audit. It will also impress and alleviate transparency fears if in the process of buying an agency or selling your current one.

Scaling a Trust Fund

Many small or even medium-sized businesses would never think of keeping trust funds separate from their operating accounts. They may instead develop their own system when it comes to tracking and paying for a variety of expenses throughout the year. But an insurance agency is normally dealing with extremely large sums of money, and they often don’t have this luxury. Even a tiny agency may be working with millions on a regular basis. Having a way of monitoring a trust fund by tracking the commission figures isn’t just nice to have, it’s a necessity to properly divide, categorize, and manage earmarked funds. Without accurate reporting, agencies can end up being accused of fraud or insolvency by any of their partners (or the IRS.)

Invoicing Headaches

An agency makes their money from numerous clients, all paying premiums at different times and in varying increments. Invoicing not only takes a lot of time, it’s also a breeding ground for employees and customers to make mistakes. Any delinquencies on the accounts will require time-consuming follow-up. The longer the delinquencies go on, the more out of control the trust account will become. This is usually where agencies get into trouble when they’re dealing with a trust account. Decision-makers are unsure of how much commission has been technically earned — they’re only concerned straight operation costs. If commission funds are constantly being changed from the trust account to the operating account, the agency has a major problem on their hands.

Going the Extra Mile

Trust account management to people who aren’t familiar with principles behind it will often look extraordinarily fussy. The amount of detail and precision may even seem like a waste of time. But considering funds are supposed to be tracked at the policy level, agencies can’t afford to take any chances. The balance of the trust account is supposed to be at or above the level of the net premium, or else the agency may be declared insolvent. If one premium payment accidentally gets used to settle another premium from a different carrier, agencies will be liable for these mistakes eventually.

An agency that’s ready to make some major moves has to have their finances in order before they even consider courting buyers or wooing sellers. Whether acquiring or relinquishing, clean financial records will make the due diligence process much easier for everyone involved. Having an intermediary to help you either buy or sell can be the best way to get the advice and help you need to get your trust accounts back to a manageable level. Better trust account management is also one of the best ways to ensure that money is being collected and spent as wisely as possible.

2018: The Best Year to Sell Your Agency

If you’ve been thinking about selling your insurance agency, it may not make much sense to do so with the holidays quickly approaching. You’ll garner much more interest (and better offers) if you choose to wait until 2018. The first quarter is not only the time for you to make your own resolutions when it comes to your business, it’s a time when other decision-makers are interested in making a big splash in the new year too. See why 2018 will be a great time to sell, and how you can approach the sale with the right attitude and assistance to maximize your profits.

Time for a Change

If the thought of your agency gives you anxiety as opposed to excitement, then 2018 may be the best time to jump into something different. Your clients deserve the best, and a new owner can be the key to delivering the service and attention they need. Maybe you’re still eager to make your mark in the business world, but insurance simply isn’t the gig for you anymore. If employee or client disputes or demands are being ignored or your heart just isn’t in it, then making the resolution to sell is a proactive measure you can take to avoid having to watch your agency descent into chaos.

Hesitation Won’t Help

Your agency is a business that you’ve likely put a lot of time and effort into, but what happens when it’s time to take a little breather from the hustle and grind? Don’t wait until you’re so sick of dealing with the questions, fires, and hassles of agency life because you’ll end up selling the agency to the lowest bidder just to be free of it all. If you’ve been considering getting rid of your agency for a while, pulling the trigger in 2018 is a smart way to give yourself some extra time before you hit your breaking point. Experts say that the more time you give yourself, the less likely you are to face common problems that arise during a sale. If you’re already feeling exhausted by your job, it’s not likely to get easier with time.

Market Outlook

This is one of the biggest factors that sellers have to think about before they even consider letting their intentions to sell go public. When it comes to forecasts for 2018, the trends are thankfully in your favor. While it’s true that certain types of insurance have outperformed others in recent years, the ups and downs are still pointing toward an upward trend. The new year is expected to see businesses gain a tighter control on their operations in order to take advantage of the growth potential. This means that leaders will be looking for ways to expand their client base without compromising their own profits in the transition. It’s important that sellers give potential buyers a simple way to facilitate the transfer, so they can hit the ground running after the ink on the final paperwork is dry.

Additional Help

Using the right intermediary to sell your agency in 2018 is going to be worth its weight in gold for agency owners who are ready to move on. Intermediaries may not have specialized knowledge about your particular company, but they have specialized knowledge about what it takes to sell an agency. Too many owners settle for a number they would never have even considered when they first started their business. They do so because the sales process is incredibly time-consuming, and they didn’t realize just how much work they would need to do to finally settle on a buyer.

From valuations to sale terms to the final paperwork, intermediaries find ways to streamline the many tasks ahead so agency owners can focus on what you want to see from the sale. An intermediary will consider far more than just the financials of the transaction, but your own personal wishes as well. For example, if you want certain staff to stay on after you leave or you want clients treated a specific way, an intermediary will do the due diligence necessary on the potential buyers before moving forward. This way, you can give your agency up without any regret.

What You Should Know About SBA Loans

sba loans

According to Forbes, only about 50% of businesses survive past year five. There are many reasons for this staggering failure rate. But regardless of the cause, it makes lenders skittish about lending to startups or people buying an existing business like an insurance agency.

SBA loans are loans that are designed to expand the opportunities for entrepreneurs who may not otherwise be able to get funding. In most cases, those 50% of businesses who do succeed wouldn’t even have the opportunity to do so without the SBA.

An SBA loan doesn’t come from the SBA directly. Rather it’s a guarantee from the SBA that if you default, they’ll pay back part of the loan. This shared risk makes lending to you more appealing to banks and other institutions.

Because of this, you can get better terms, lower payments, longer payback windows and higher amounts than those for which you might otherwise qualify. Let’s look at how it works.

Types of SBA Loans

The SBA offers a wide variety of loans. Each loan serves a certain purpose. For example a startup or existing business may need a loan for:

  • Acquiring real estate of an existing business
  • Working capital
  • Buying equipment
  • Disaster recovery
  • Starting a business in an underserved area

Micro-loans (under $50 thousand) in addition to larger loans are available. The website includes many helpful resources that will help you understand what type of loan is right for you.

Who Qualifies for SBA Loans

To consider if you qualify, you should first evaluate what your needs are to determine for which type of loan you should apply. Each loan type will have its own qualifications that will help address the unique situation.

In addition to meeting SBA requirements, you will also need to demonstrate your creditworthiness to the lender. They will be looking at your financials and may also evaluate what you intend to buy to ensure you’re a good credit risk. The SBA and your lender will also want to know that you have “skin in the game.” Many loans, but not all, will require that you’re putting a percentage into your business venture.

Buying an Existing Business with an SBA Loan

The SBA recommends that you consider the following when applying for an SBA loan to buy an existing business like an insurance agency.

Take a close look your financials and the books of the business you’re purchasing. Use this information to determine a reasonable amount to pay for the business. Evaluate how much it will cost to manage the business to be certain that this is a smart investment for you.

The SBA encourages you to be honest with yourself about whether you have the in-house skills to manage this business. If you don’t, how will you acquire these skills in order to run a successful agency? Or should you be buying this specific agency? Maybe another would be a better fit.

Finally, they urge you to make sure you know what you’re buying. What infrastructure is in place? What liabilities, technologies, cash flow, patents, contracts, etc. come along with the deal? Consider everything to make a smart buy decision.

How Do You Apply

You will complete the application process with the SBA. The documents required will be a little different depending on which loan you apply for. They’ll walk you through the process step-by-step.

What Happens If You Default on an SBA Loan

It’s also important to discuss the consequences of defaulting on an SBA loan. There are some pros and cons getting an SBA loan. They do make it easier to get funding but if you default, you now have both the bank and the US government contacting you regarding your unpaid debt.

If you don’t pay back your loan, the bank can legally require you to shut down and liquidate assets to pay back the loan. After this, the loan will be handed back over to the SBA. You will have an opportunity to settle with them, but if you continue to default, they do have the power to garnish wages, without tax refunds, etc.

This is why it’s so important to work with someone who understands the mergers and acquisitions process. We’ll help you evaluate agency purchase decisions and negotiate the right price so that you’re set up for success in your agency buying and management ventures.

How to Find Potential Agency Buyers

potential agency buyers

Why do so many insurance agency acquisitions fail? In many cases, it comes down to not finding the right buyer. You’ve invested your time and life into building your agency. When it’s time to sell your agency, you need to know how to find a buyer for your insurance agency and close the deal. Let’s take a look at how to do just that.

Establish a Real Market Value

Before beginning the hunt for a potential buyer, you should make sure you know the real value of your agency in the current market. Generalized valuations like multiples of revenues may help you in your day-to-day. But when it’s time to make a major move like selling an agency, you need to make sure you get what it’s really worth and avoid letting it sit too long on that market. This can be detrimental for agencies as you’ll see in the next section.

Avoid Public Announcements

How do you sell something without letting people know it’s for sale? It seems quite a dilemma. When you put your agency on the market in a public way, the feeding frenzy begins. I’m not talking about agency buyers. I’m talking about your competition. When your competition sees that you’re selling your agency, they can leverage this bit of information to mislead your clients.

They can twist the facts to make it look like your agency is struggling and looking for a bailout. This could be the furthest thing from the truth and could harm the value of your agency in the marketplace.

Because of this, discreetly reaching buyers is the way to find the right a buyer. We’ll talk a bit more about how to do this a little later.

Steer Clear of “Tire Kickers”

When you’re looking for potential buyers, watch out for tire kickers. These buyers have no real means and/or desire to buy your agency. You can spend 100’s of hours preparing reports, scheduling meetings and otherwise wasting your time and money.

Many people may approach you interested in your agency but these individuals have no real way of funding the acquisition. They have no cash on hand and don’t qualify for loans. Evaluate the creditworthiness of buyers before you get in too deep when looking for insurance agency buyers.

These entities will often demand a lot up of attention up front and then after months, they finally make an offer. It’s well below what you know your agency is worth. Some agency’s sell because they’ve invested so much time and money into the deal but this is a costly mistake.

Screen Out Unscrupulous Buyers

You’ve worked hard to build your agency. You have people who’ve been with you from the start. Just because you’re ready to sell doesn’t mean you’re willing to throw your trusted teams to the sharks.

Know to whom you’re selling. Vet them thoroughly. Review their track record. Understand their intentions. You don’t have to settle for someone who’s going to dismantle and destroy what you’ve built.

Evaluate Niche Experience

You also want to know that a potential buyer understands what they’re buying. No one knows better than you that every niche, region and demographic is different. Someone who’s successful in commercial health insurance in Tampa may not have a clue about Medicare Part D in Phoenix.

Ask questions and get an idea about the experience within the organization. What kind of strategies do they have in place to fill in any knowledge gaps? Do they seem to have at least a high-level understanding of your niche?

Don’t Let Selling Your Agency Interfere with the Success of Your Business

Selling your agency can be a relatively quick and seamless experience or it can be long and drawn out, costing you thousands or more. The reason so many acquisitions fail is because while the seller is orchestrating the sale, they’re letting operations suffer. It’s not intentional. It just becomes hard to be in two places at once. You do enough of that already.

When operations suffer, deals may fall through at the last minute because of a change in enrollment, expenses, staffing or revenues that happened in the interim. When this happens, agencies go back to square one.

How an M&A Broker Helps You Find Potential Agency Buyers

A Mergers and Acquisitions broker can help you quickly and discreetly find the buyer who’s right for your agency. We do all of the screening and negotiating for you so you can continue to focus on running your agency. We protect your confidentiality so that you can smoothly transition your agency to a new owner. If you want to know how to find a buyer for your agency, give us a call.

How an Agency Brokerage Consultant Helps You Navigate the Commercial Loan Process

commercial loan process

Whether you’ve already located an agency to acquire or are still on the look out for the perfect acquisition opportunity, you need financing before you can seal the deal. Navigating the commercial loan process can be tedious and often discouraging process. When your deal hangs in the balance, you can’t afford a misstep.

Here’s how an agency brokerage consultant will help you navigate the commercial loan process.

See Things Through the Lender’s Eyes

The first step to navigating the commercial loan process is learning to see it through the lender’s eyes. What are they looking for? What would make them see your acquisition as a good credit risk? What red flags might sway their decisions?

In the insurance industry, you’re hyper-focused on identifying and mitigating risk. Your lender is too.

An agency brokerage consultant will help you identify what lenders are looking for, and looking at. They understand what lenders need to see from you. Chances are that your acquisition is exactly what they want to finance, but if you don’t know what they’re looking for, it’s hard to demonstrate that.

An agency brokerage consultant will present your acquisition in the best light to lenders. They’ll demonstrate that you’re exactly what they’re looking for in borrowers.

Evaluate Your Position

A consultant will do this by assisting you in objectively evaluating your position. Most lenders will be looking at 3 primary areas to determine if you’re their ideal borrower.

Cash Flow

A brokerage consultant will help you crunch the numbers to determine the cash flow in your proposed investment. They’ll look at:

  • What the current cashflow is
  • How it will weather a transition
  • How you can turn liabilities into assets

Solid Experience

A commercial lender will only consider you a good credit risk if they believe that you have the experience within your organization to acquire, integrate and manage the company you plan to acquire.

As you well know, all insurance is not the same. Companies may have different target demographics and populations with different needs. Of course, this may be why you want to acquire. You’re looking to expand and grow vertically in addition to horizontally. But in order to do this, you need to demonstrate to the lender that your in-house skill is up for the challenge.

An agency brokerage consultant can help you evaluate your in-house capabilities to put your best foot forward in the lending process.

Powerful Credit Profile

Your company will additionally be under increased scrutiny. The lender will want to see everything. A consultant will help you gather your necessary documents and get your ducks in a row so that you can secure that loan.

Determine What Type of Lender Aligns with Circumstances & Goals

It may be tempting to cast your seeds broadly, applying with multiple commercial loan companies. But this is a waste of time and money. Instead, optimize the process.

Some lenders will have a higher level experience with certain types of companies. Because of this greater level of experience, they’re better able to evaluate risk and see the opportunities you see.

We’ll help you streamline the process by seeking financing from companies who understand what you do and are most likely to lend you money at the best terms.

Finalize Terms To Complete the Commercial Loan Process

When it’s time to finalize terms with a lender you must know where you stand, what your options are and what makes sense to you.

In addition to the potential in the investment itself, a consultant will evaluate:

  • Your current asset holdings
  • Your available collateral, in instances where you qualify solely for an asset-based loan
  • A reasonable payment schedule for you. They may be able to negotiate more favorable terms in exchange for a shorter-term loan.

A great brokerage consultant will help you evaluate where you stand and then work help you get terms that make the most sense for you.

Complete the Acquisition with an Agency Brokerage Consultant

Once your agency brokerage consultant has helped you navigate the treacherous commercial loan process, it’s time to complete the acquisition and begin managing your new company. The road ahead won’t be easy. But by working with an agency brokerage consultant you can be assured that you’ve laid a strong foundation for your success.

As agency brokerage consultants, we know the insurance mergers and acquisitions process inside and out. We can help you achieve great results. To learn more, contact us today.

What is the Purpose of an Agency Valuation?

agency valuation

Regardless of whether you plan to buy or sell an agency, getting an agency valuation is a smart financial move. When you know what your agency’s worth now, you can make more data-driven decisions about your company. You can take advantage of opportunities and you can better position yourself in the market.

Let’s look at the purpose of an agency valuation.

Understanding the Total is Greater than the Sum of Its Parts

Some agency owners may think they know the agency valuation on an ongoing basis by evaluating their profit margins but, as you know, this will only give you a piece of the story. Common methods like applying revenue multipliers can give you a ballpark for reference, but this isn’t a number that anyone should be “taking to the bank” or making major decisions on.

The value of an agency is more than the sum of its parts. If you’re considering buying or selling agency, you need to make sure you have a true agency valuation. Two businesses with very similar revenues can have very different values in the real world.

Agency valuation includes things like:

  • What lines of business the agency is in
  • Loss ratios within the company
  • Insuree acquisition costs
  • Retention levels
  • Cash flow

Getting a Value for the Intangibles

Getting a true agency valuation means that you measure the aspects of the agency that are hard to quantify. Just because you can’t easily measure these things, doesn’t mean you shouldn’t. Many of these intangibles can have a big impact on the value of your agency or an agency that you’re considering buying.

Some of the intangibles include:

  • History of growth in various markets
  • Potential for expansion into new markets
  • How your LOBs might complement another agency’s LOBs
  • Operational efficiencies
  • Investments in employee brand and education
  • Morale & Turnover
  • Management Experience
  • Niche specialties
  • Market trends and variables

Making Smarter Decisions About Buying and Selling

What’s your agency really worth the current market place? What’s it worth to a particular buyer? Should you buy another agency? Does the price they want for it align with what it’s really worth?

Agency valuation will help you answer these questions in very quantifiable ways. When you have a clearer fair market value, you can make the right decision for you and your agency.

Establishing Firmer Ground on Which to Negotiate with a Buyer or Seller

When you have a more thorough agency valuation, you will be in prime position when you sit down at the negotiating table. Rather than just having a loosely contrived valuation in your tool belt, you have a proper valuation of your agency or the value of an agency you plan to acquire.

With this value in hand, you can ensure that you’re getting the best deal and you’ll know when it’s a no-go and time to walk away.

Showing You in the Best Light to Lenders and Investors

When you need to raise capital or get a commercial loan, you need a real agency valuation to demonstrate that you and/or the acquisition is a good credit risk. You do this by appropriately evaluating both your market value an fair market value.

Lenders and investors need to see that you understand what you’re doing and have the in-house skills needed to help them earn the right return on their investment.

A thorough agency valuation gives lenders and investors get a better picture of the opportunity that you’re presenting to them.

Just in Case

Having a current agency valuation prepares you for the “just in case”.

Sometimes you never really planned to sell, but a fleeting opportunity arises. You’re ready. Other times the unthinkable happens: divorce, death or partner, lawsuit, major legislation shift.

In these cases, having a business valuation ready, will allow you to act fast to seize opportunities or mitigate damages.

Getting an Agency Valuation

Getting an accurate agency valuation will give you a better understanding of where you stand. With it, you can make more data-driven decisions for the future of your company.

But arriving at an accurate agency valuation requires significant skill and experience in the insurance agency valuation market. Working with an agency brokerage consultant is the smart choice. If you’d like to learn more about how we can help you obtain an agency valuation, contact us today.

What to Expect From a Due Diligence Process

due diligence process

The process of buying and selling an agency has so many steps involved that people can almost be forgiven if and when steps are skipped along the way. However, any mistake during the process can have real, lasting consequences that could have been avoided if there was just a little more planning. The due diligence process is a chance to address these issues before they take root, but it needs to be handled very carefully. Many agencies find that it makes far more sense to seek outside help than to do it on their own.

It’s Not Simple

Due diligence refers to the work a buyer has to do before they decide to acquire another company, and it can be fraught with complications. A buyer may be interested in acquiring a rival insurance agency before realizing that their client base isn’t really as high as it seems. Or they may sign the final documents only to find out that the acquired company is involved in a lengthy legal battle. The operational and financial details of a company aren’t always correct, and companies may try to hide some of their past mistakes in the darkest possible corners they can find (without outright lying.) If companies aren’t able to analyze the information accurately and find out exactly what lies behind the numbers, they could end up in extremely hot water.

What Is Reviewed?

All of the financial matters are reviewed, including bank statements, payroll information, and tax returns. In addition, due diligence will also carefully go over the management processes, employee productivity, and carrier reports of the agency in question. Contracts are scrutinized so the buyer can be assured there are no potential conflicts. Adjusted earnings are carefully calculated so there are as few surprises as possible should the transition occur. The biggest problems are usually found in the financial holdings, and it’s not unusual for records to contain some fairly egregious errors. Pro forma statements may be wildly optimistic, premiums may get mixed up in the wrong categories, or financial transfers may not always make it to the right accounts.

How Long Does It Take?

Buyers usually get several weeks to get all of their ducks in a row, but it’s rare that companies have the type of manpower needed to devote to the due diligence process. It’s unlikely that anyone near the top of the company will be able to spearhead the process, which is exactly how certain matters are overlooked. When you hire someone else to come in and help, you get the benefit of a specialist who has no other tasks on their menu besides helping you make the strongest decision about whether or not to buy. It also makes the seller happy because there are no delays in the process, and it takes a lot of stress off those who have other things on their plate.

What Skills Does It Take?

You can expect due diligence to require someone who’s extremely attentive to detail. This is not simply a matter of knowing the insurance business inside and out. There’s little doubt that anyone in the position of buying an agency will understand the jargon and the minutiae that all industries develop over time. This is far more about discovering the potential quirks that specific businesses have that will ultimately impact profits. What makes a company unique may be good or bad, but it takes someone who’s both trained and committed to finding the truth — especially when it could be buried underneath a mountain of irrelevant data.

The Problem Is Solvable

If you choose Agency Brokerage Consultants, you can trust us to handle the workload that the due diligence process entails. We work with general insurance agencies, as well as those who operate within a specific niche (e.g., casualty, property, etc.) Once we have the answers in hand, clients get a full report about everything they need to know. We provide proof for any statement we make, and we give our honest opinions based on many years of experience in due diligence. Our reports are regularly used in the negotiation process, which can potentially save companies up to six figures when it comes to how much they actually pay.