In an all too common and unfortunate situation, agency principals are often suddenly forced to step away from their agency due to death or disability. In this unplanned and unexpected scenario, there is no “break-glass-in-case-of-emergency” option, and it can be incredibly disruptive for the ongoing agency operations. At this critical moment, the CSRs and producers are thrust into a situation they are not prepared for – managing and leading the agency.

In many of these situations, the principal or their family needs to get immediate cash out of the agency to support their change in life and they are forced to sell the agency. While this sounds rare, this story is more common than we would like to think.

Whether it’s a fire-sale or a long-term plan, getting a business ready to sell is no small task. It should involve documentation and formalization of the transition plan. Any handshake deals or client notes on paper will not add to the value of your agency, nor help the future integration. The business must have its loose ends tied up in preparation to transition the ownership of the agency. To transition ownership internally or externally, due diligence by the buyer must take place.

Due diligence is the process of learning about an asset in order to build confidence in one’s understanding of its value. Practically speaking, it means sharing documents, validating assumptions, answering questions, interviews, and learning about clients, culture, and agency profiles. It can be lengthy, detailed, and exhausting.

The due diligence process can have a significant impact on the final value of the transaction. The information shared in this process should be efficient, thorough, and concise to maximize value. An essential component to maximize your agency’s value through this process is your agency’s accounting. You do not need to be a CPA, nor do you need to be up to date on the latest FASB standards, however you must employ the customary industry accounting practices.

Based on the 300+ agencies that IA Valuations has advised on their value, here are 3 ways that accounting practices can affect the value of the agency:

  1. Inefficiencies increase the amount of time it takes to transition ownership. On average, it takes 230 days to transition ownership of an agency. Once an agency principal decides they want to do a transaction, it takes time. Once the seller and buyer have entered into a Letter of Intent (LOI), the due diligence phase begins. Typically, the minimum expectation for due diligence is 90 days. As an agency leader trying to sell a business or a decision-maker trying to buy a business, the last thing you want to do is have accounting practices that are confusing to the other party. This will almost guarantee that your due diligence phase will take longer, thus delaying your close date and the next phase of your life.
  2. Abnormal accounting practices increase the perceived risk associated with your agency. The goal of due diligence is to create a level of understanding between the parties, where each feels confident that they know the other’s business and feel comfortable with the value of the transaction. Confidence in a business strengthens value. Abnormal accounting will decrease this confidence in the other party and thus have a monetary impact. If you are an agency owner selling, the offers will likely be lower than they could be otherwise. If you are considering merging, it may shake a prospective partner’s confidence enough to back out of the deal.
  3. The inability to answer simple P&L-related questions decreases your agency’s credibility. The credibility of the agency leaders in the eyes of the party you are engaged with will decrease. If you are in the due diligence phase, it means you should have signed an NDA, which means your public credibility will be unaffected. The deal that you are working on, however, will likely see a monetary or other tangible negative impact due to the decreased credibility they perceive.

The agency you have built or are building should not be devalued or questioned due to something as tedious as accounting. Your book of business, carrier relationships, and staff are certainly too valuable for that. So, how can you make sure this will not happen? We recommend implementing the following accounting practices to ensure you follow industry standards.

  1. Automate your accounting practices. If you are not already using an Agency Management Software (AMS) integrated into your agency accounting practices, strongly consider using one. They are not only very efficient, but they are also the industry standard. IA Valuations estimates that over 80% of independent agencies use an AMS to manage their business. If you are ever engaged in due diligence and you use an AMS to do your accounting, there’s a great likelihood that the other party has seen the format of your P&L, which will increase their comfort and confidence in learning your business.
  2. Re-evaluate the current state of your accounting practices. If you are already in a relationship with a CPA, re-evaluate them for familiarity with the independent agency system regularly. If you are a new owner of an agency and the accounting has been done the same way for 30 years, get a second opinion. What may have worked many decades ago, may not be the industry standard today. Having a CPA who is familiar with the current insurance agency accounting practices will ensure that your agency is filing accurate tax returns.
  3. Choose your CPA partner selectively. Along the lines of the above, if you have not used a CPA or firm to do your taxes or accounting before, make sure to vet their familiarity with insurance before entering into an agreement with them. Simply asking them if they have prior experience working with agencies will go a long way. See if you can get a reference list from the CPA or firm so you can ask other agents about their experience.

Accounting is the foundation of running an insurance agency. The hard part is acquiring clients and markets. Do not let accounting practices detract from the value of your agency. If you are uncertain of your accounting practices and how they may affect an upcoming ownership transition, please connect with Jarod Steed at

By: Jarod Steed, Business Planning & Valuations Analyst

About IA Valuations– Founded in 2017, the IA Valuations team has performed over 250 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit or    

The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please to discuss your personal situation.   

Copyright ©2024 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved. No portion of this document may be reproduced in any manner without the prior written consent of IA Valuations or OIA. In addition, this document may not be posted as a link on any public or private website without the prior written consent of IA Valuations or OIA

Leave a Reply

Your email address will not be published. Required fields are marked *