There are many things to consider when perpetuating your insurance agency. As there are many moving parts and the planning and execution can take several years, time is of the essence. This article will be the first in a series that discusses the various big picture questions to consider as you plan to perpetuate your agency. A better understanding of the various components will help facilitate discussions with your partners.
Before we discuss the ins and outs of perpetuation planning, we encourage agencies to take the step of creating a buy-sell agreement with the current partners. This will stipulate what would happen to the agency’s stock, should something unexpected happen to any of the partners. For the protection of all partners and the business, it is critical to create and execute this agreement. For agencies with one principle and no viable internal perpetuation candidates, we encourage you to set up a contingency buy-sell agreement with a local friendly competitor. This will protect the estate and help to avoid a fire-sale situation, should something unexpected occur.
From an ownership perspective, communication is the basis for all successful perpetuation plans. It is key that as you begin the process, all partners should know each other’s individual retirement plans and how they align with the agency’s perpetuation goals.
You should keep current ownership expectations in mind and consider what these mean for the future. Some key questions to consider include:
- What is the current ownership structure? How many owners? What ages? What percentage of stock ownership does each owner have?
- Is there an existing perpetuation plan?
- Does each owner share the same desire to perpetuate?
- Can each owner afford to retire?
- Do agency owners understand and appreciate the personal retirement goals of each other?
- How important is it for your agency to remain independent after your transition?
- How important is it for the business name to survive?
- How important is it for you to see the current staff remain after your departure?
- Do any family members or key employees have any interest in owning a part of the agency? How involved are families in the plans?
- Do you have non-compete or non-solicitation agreements for each owner?
- These are subject to change with the new FTC ruling
- How do the wills and estate plans of each owner affect the perpetuation plan?
- Will the agency continue to pay for perks and benefits (such as group health) for departing owners?
One purpose of a documented perpetuation plan is to help the owners avoid surprises. So, beginning with the end in mind, the partners can work to develop a plan that ensures an orderly and regimented transition of agency stock, books of business, leadership, and relationships, while avoiding any surprise retirement announcements.
Future articles in this series will explore timing of the perpetuation, agency and stock transfer options, creating transition plans, and how to help incoming owners hit the ground running. If any of these questions struck a cord with you or you have any questions about this process, please reach out to Craig Niess at craig@iavaluations.com.
By: Craig Niess, CVA, MBA, Director of Business Planning & Valuations
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 contact@iavaluations.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 contact@iavaluations.com to discuss your personal situation.
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