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,