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.