In today's challenging market, many agency owners must befeeling more than a little unstable. In fact, they are delicatelybalancing on the brink of a dilemma. To keep their business vital,it's important to take a sober look at their agency'sprospects.

Flat rates, stagnant markets and multifaceted competition haveput agencies in a very difficult position. Decisions must be madeto continue the agency's vitality or, in some cases, simply to keepit from going under.

A sound business plan and well-developed strategy are the firsttools an agency owner needs to map their firm's future. If you'vearrived at a challenging crossroads without the proper strategicmaps or global positioning system to guide you, your people will beleft blindly stumbling around in circles instead of advancing inthe right direction.

Basically, an agency owner has three directions to take: stayright where you are, enhance the agency, or find a buyer orpartner. How can these three difficult choices be betterunderstood?

o Stay The Course:

In most cases, the least advisable choice would be to stay thecourse. Even if your current plan is paying dividends, it is wiseto question how long that will continue.

In today's business climate, an agency cannot remain financiallyhealthy unless it has some growth. The rate environment couldremain static or even worsen, and with it would go your profitmargin.

Costs will surely continue to rise, making it more expensive tomaintain the status quo. Competition will be on that arc, too, asconsolidations and newer players keep eroding even the most stablemarkets. Middle-market firms are especially susceptible to thisscenario.

Finally, staying on the current course is a slow-to-no growthproposition, and that does nothing good for shareholder value.

Many agency owners choose this route of stripping earningswithout an eye on reinvestment or creating value. This is oftenreferred to as “milking the cow.” But even old Betsy will stopproducing milk if she is not fed properly.

Modest corrections can keep the business going for a time.Additional shareholder investments can do that, as well. Butlong-term stability and success is much more likely with a growthplan.

o Enhance The Agency:

If growth of some sort is on the agenda, the challenge isbalancing risk and reward in a volatile environment.

The first tenet of growth is that it needs to incrementally addvalue. The increased worth must be measured in relative terms,compared to overall industry growth rates as well as largereconomic indicators. Growth must be able to keep pace withinflation, industry trends and anticipated economic actions, or awise investor would rather put those new dollars in the bank.

What actions can fuel enough growth to meet such guidelines?That will depend upon each individual firm and its prospects. Breakit down into four components: a competitive strategy, a financialstrategy, an acquisition strategy and financing.

In general, an agency that seeks competitive differentiationwill do better. Ask what the firm must do to truly enhance eachclient's world? In MBA terms, what's the value proposition?

Unique service propositions are very important for an agency orbrokerage. Consider how the agency services its clients and uncoverany areas (service, product lines, loss control, etc.) that willhelp win or maintain a client. More than being a growth strategy,such distinctiveness is virtually necessary for survival in today'smarket.

Focus next on a financial strategy. How can the agency beenhanced to support growth? Many agencies can benefit fromregularly reviewing their reinvestment strategies, considering howto boost infrastructure and finance expansion.

Update (or create) a financial plan and make sure it hasconcrete goals attached. For a reality check, create an externalcommittee of advisers to provide business acumen and insights oneffective growth. Don't examine a single tree so closely that youlose sight of the forest.

What's the firm's acquisition strategy? Hopefully, it is morethan simply reacting when a local competitor has decided he wantsout. For measured growth, consider an acquisition strategy thatcontemplates expansion by geographic area, market or product.

Cost of capital is a key consideration. Guidelines must be setto provide an expected rate of return that makes the investmentworth pursuing. Also address integration issues. A truly integratedpurchase will allow for maximized economies of scale.

The savviest acquirers also set targets for type of acquisition,and then identify candidates that fit their framework. Consider thecultural identity of your firm and target firms, and include suchissues as staff compatibility, compensation plans and growthexpectations of each firm.

Finally, does the target appear to assimilate into your firm'spractice from an intuitive and philosophical perspective?

If an acquisitions path is sought, the groundwork has been laidfor vetting candidates, and sound financing must be in place.Financial advisors, both internal and external, must be able toadvise the firm whether a new acquisition is worth the investment,based on the cost of debt and the margin expected to result fromthe purchase.

Many agencies have difficulty finding a lender that trulyunderstands–and therefore will adequately finance–their agencygrowth. Banks that primarily serve bricks-and-mortar clients maynot comprehend the value of an agency model, and hence the agencymay not get competitive rates or adequate financing capacity.

Seek a cash-flow-based lender. Make sure the lender sees beyondthe balance sheet and understands the agency's intangible value, aswell as the value of its recurring cash flow.

o Partner-Up Or Sell:

The third choice for an agency at a crossroads is to find abuyer or a partner. This is neither a quick nor easy solution tothe problem of stagnating markets and flat rates. In the currentenvironment, even though it is the path taken by many firms,consolidation is not the wisest choice for everyone.

A detailed financial analysis can shed light on the question ofwhether to sell or continue the business. Consider the risk ofreinvestment and the likely overall financial result versus thetax-effected results of partnering or selling to another firmnow.

Calculate the agency's market value, and then consider theowner's current compensation and potential compensation–either inthe current firm or in another business after the sale.

Compare the investment potential of this package, which could bethe owner's net worth, with the expected return if the ownerreinvested in the agency and continued operations. (This processincludes too many details to fully outline here.)

Many agency owners have considerations beyond personal finances.Some seek to perpetuate the firm to the next generation, whileothers have minority shareholders with disparate or conflictinggoals. Financial calculations must be made with the entire mix ofgoals in mind.

Ultimately, a sale or partnership is a long-term undertaking.Such deals often take three-to-five years to culminate, and muchadministrative energy must be expended to make the transactionsuccessful. Therefore, the situation should be carefullycontemplated before any decision is made.

Summing up, continuing the business in a steady state may be theshort-term solution while the groundwork is laid to map out along-term plan. For those with a current business map in hand, thefuture should be less hazy.

Whether choosing to build for the next generation, continuing tooperate in a steady state, or seeking out the perfect partner,endeavor to understand all the options before you're selecting acourse of action.