There’s going to come a time where you will consider selling your agency. However, most agencies don’t have a perpetuation plan.
Some of the toughest situations occur when an agency owner has poor health and is unable to sell on his or her own terms. The children are interested in the business, but don’t have the money. Or the kids have no interest in insurance and the owner has to sell in order to support him or herself in retirement. When an agency owner has to sell, they’re usually not prepared. This gives buyers leverage to negotiate, and worst of all gives you less of a payout than what you deserve.
There are several myths in agency acquisitions, one of them being that agency value is determined by the blood, sweat and tears you invested over the years. Insurance agencies are worth the cash flow available to the buyer when the current owner leaves. It’s not based on a multiple of revenue, how hard you’ve worked or anything else. The cash flow multiple is adjusted up or down based on several factors–and that’s where you can maximize value. Here are a few tips to make sure you get the most out of your agency when you sell:
- Data: You need accurate data in order to pass the smell test. This includes downloads, management system usage, e-mail addresses, client documentation and other forms of data.
- Accounting: This is the biggest pain point for buyers and sellers. Your P&L should match your commission statements to the penny. Your expenses should be clear and concise and match your corporate taxes. I’m a big fan of saving trees, but printing commission statements and filing monthly by carrier in bankers boxes will help when it comes time for due diligence.
- Marketing: Nobody wants to pay top dollar for a declining business with no strategy in place to grow. Investing time and money into building a sales machine will go a long way in not only increasing the value of your agency, but also earn you more money while you are in business.
- People: Is there someone in your organization who can run the agency for a new owner? Chances are the buyer has other locations or isn’t involved in daily management. Do you have someone there that can manage the day-to-day operations? That’s valuable to a buyer, because when you leave, your salary and expenses go to the bottom line as the buyer won’t have to hire a manager to run the agency. The additional cash flow will make a huge impact on your valuation.
There are obviously other ways to increase value, but you need to cover the basics before anything else. First and foremost: Treat your agency like it’s for sale today. When you create a process, take on a new carrier or invest in technology, ask if it’s adding value to the agency.
Most agency owners sell a business once, but agency buyers have purchased several. This puts the seller at a disadvantage due to the lack of experience, so hire a professional. When we sell our homes, we hire a Realtor. M&A brokers that specialize in the insurance industry will always net you more from the sale then you will on your own. These brokers have experienced multiple deals, different structures and can ask buyers tough questions that you can’t. They usually have a network of qualified buyers so you don’t have to sift through the real buyers and dreamers.
Selling your agency should be a joyous occasion if done properly. Make sure you’re prepared and avoid waiting for hard times to sell.