The challenges of agency continuation and perpetuation are always hot topics for owners and would-be owners. As vice president of education for the Florida Association of Insurance Agents (FAIA), I have received hundreds of calls over the years about agency perpetuation. Members call wanting to know how to prepare for this major transition in their lives, where to find buyers and sellers, and what options should be considered.

In response to these questions, we hosted a series of clinics about the process, featuring four nationally renowned speakers from InsurBanc, MarshBerry, Hales & Company, and Reagan Consulting. We asked those experts to compile a top ten list of tips for those whose plans for the new year include a change in agency ownership.

Tip #1

Start now! You cannot start too early planning for your agency continuation. To perpetuate, you must set the stage for employees, buyers, bankers, carriers, and any other stakeholders. This can take years to get right, and the better you handle the preparation, the more money you can get for your agency. The motto is: “The day you buy your agency is the day you begin preparing for perpetuation.”

Tip #2

Institute best practices. Take a look at how your agency performs in all the usual business areas. Are you making money? Is anything reinvested back into the business? What if you had to sell today? Do you have procedures and policies in place to help ease the transition? Would a bank give you a loan tomorrow?

Tip #3

Invest in your employees. Begin grooming employees for future leadership. Do you have employees who are holding you back and costing you money? Start documenting their performance now. Be sure that you have leaders in place that will keep the agency healthy after you go (and who can keep paying you during the earn-out phase of your payment plan). Young people all want to own an agency. Have you found a few who are willing to buy one — maybe yours?

Tip #4

Evaluate your book of business. Are your carrier relationships tight? Do you have a good mix of companies, products, and spread of risk? If they came in today, would the carriers you have now still make the appointment? If the answer is no, those contracts could be lost when ownership transfers are made.

Tip #5

Upgrade and document. Are you up to date with technology? Are your procedures all in writing and current? How consistent is workflow from desk-to-desk in each department? The better your documentation is, the easier the transition will be if you end up with a merger or roll-up in your perpetuation strategy.

Tip #6

Get the back office in order. How does your back office work? Is your accounting system merging with your agency management system? Do you follow proper GAAP standards? Is your personnel manual up to date, published annually, and signed by employees?

Tip #7

Write it down. Do you have a well thought-out perpetuation plan — and is it in writing? A buy-sell agreement is important, but it's not the whole plan. Do you have help with this? (You need an objective opinion.)

Tip #8

Verify your worth. Get an appraisal of your agency on a regular basis. This is expensive; however, if you don't know what you are worth, how can you sell? Using a multiple of revenues is not a valuation. “Three times revenues” is a way to express a final valuation number, but it is never that easy to figure out your real value. Remember, buyers want to talk about profit, not revenues.

Tip #9

Consider all options. Do you know what you would be willing to sacrifice to sell internally? External sales statistically bring in more money. Internal sales involve more owner financing and can run as much as 20 percent lower in terms of final purchase price.

Tip #10

Understand it's not “just business.” Prepare yourself emotionally for the transition, too. You may need to find a hobby now, so that when it's time to go you have something to do. That may sound odd, but many agency transitions fail because the “old” owner won't let go. Be ready to disengage your personal self-worth from the activities of the agency, because looking over the new owner's shoulder really won't help. Find a way now to get excited about that next chapter in your life.

Special Reports /

Thinking About Selling Your Agency in 2009?

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