Many insurance agency owners have long reliedon an old formula for determining the value of their business.
“I don't need a valuation,” one owner told me, “I know how itworks. Everyone gets a multiple between one and two times revenue.”Interestingly, the following year that owner was surprised when aprospective buyer started looking at his company and things gotmore complicated.
The first problem with the “one to two formula” is thatit's both true and false. Many transactions do end upvaluing out at 1 to 2 times revenue. Depending on the size of yourfirm, that can be a very big range. Consider the difference betweenone and two times revenue for a $1 million agency. The differenceis a million dollars!
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