As an agency owner, when it comes time to sell your agency or internally perpetuate, you want to be in the driver’s seat during the process. Now, what exactly does “being in the driver’s seat” mean as an owner? Simply put, you are in control during the sale, you know your numbers, you’ve done the research, and the process is moving at the speed and manner of your choosing. Too many times, we see agency owners take their foot off the gas, lose motivation, and when the time comes to sell the agency and move on, many of the factors are out of their hands. They are forced to sit back and watch as the situation drives them, rather than driving the situation. This article will focus on how to put yourself in a situation so that when you reach retirement age, you are prepared, stress-free, and able to squeeze every last drop out of your greatest financial asset.
Get into the Driver’s Seat
I recently heard a story about an independent agent who owned an agency for 30+ years. He shared his story, and after many years serving in the industry, it was time to move on and sell his agency. Without children or colleagues interested in taking over, an external sale was the best option for himself and the agency. However, what really struck me is what he said about the process he went through to get the sale accomplished. After more than 30 years as an agency owner, he knew it was going to take a few years to fully prepare and sell his agency. He was in no rush to get this done; in fact, he wanted to be in the driver’s seat during the entire process. That is a significant mindset to have as an agency owner, whether you are nearing retirement age or a long way off. In our time helping broker deals around Ohio and the country, we fully understand that every transaction is unique. A major statistic we have found is that it takes an average of 320 days to sell an agency. We strongly believe that the more time and effort you put in BEFORE it’s time to sell, the more you will be able to maximize your value and enjoy retirement.
One of the factors that can immediately add stress during a sale is tax implications. Whether you are an S-CORP, C-CORP, or LLC, talk to your CPAs and financial professionals to understand which corporate structure is right for you and your agency. In most instances, it takes a few years to switch into a new structure, but the move could ultimately save you thousands of dollars in taxes. With the right corporate structure, the compensation you receive could be much higher and give you more flexibility in terms of payment structures.
Trying to navigate through the sale of your agency for the one and only time can be confusing and overwhelming. So, mitigating as many risks and question marks beforehand will only alleviate your stress in the long run. That is why, as an owner, you should have employee and producer agreements in place. This protects you as the owner, the agency, and the agency employees. Having these agreements in place is essential to bring peace of mind to prospective buyers as they complete the due diligence process; it allows them to trust that employees aren’t leaving with clients before the deal can be completed.
Fair Market Value
Get a valuation! This ties in directly with knowing your numbers. A valuation gives you a full, comprehensive understanding of your agency from top to bottom. A valuation will highlight your strengths and weaknesses, as well as provide your profitability / pro forma EBITDA numbers, which is what third-party buyers will utilize in the purchasing process. Not only that, but a valuation will help get your agency organized, as there is a fair amount of documentation and information to gather. Finally, a valuation will give you specific ways to maximize the value of your agency. With a few years of runway, you can without a doubt increase the value of your agency so that when it comes time to sell, you are getting the most out of your greatest financial asset.
Agency owners spend most of their careers protecting the members of their community, making sure they are prepared and covered when the unexpected hits. We believe that you should view the sale of your agency with the exact same mindset: ready and able to handle any situation that is thrown your way.
Whether you are an owner at retirement age, or an owner with plenty of years in front of you, have a plan. Don’t let an emergency or bump in the road be the reason that you have to sell your agency quickly and for less than it’s worth. Be in the driver’s seat, get in front, and have the pieces in place to sell your agency on your own terms and on your timeline.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 220 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 IAValuations.com or email@example.com.
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 firstname.lastname@example.org to discuss your personal situation.
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By: Luke Hippler, MBA