Reasons to Consider Selling / Merging

THE GOAL

Your agency is likely your largest asset and one you've worked hard to build for many years.  Why?  At some point, you always knew it would be time to monetize at least some of it to enjoy the fruits of your labor...

Your agency is likely your largest asset and one you have worked hard to build for many years.  It is a valuable asset and probably worth a great deal of money.  You may not want to think about it, but owning such a large asset and not at least considering how and when you would convert or monetize it into cash is probably unwise.

 

Capital gains taxes are almost certainly going up.  Now might be the perfect time to explore selling or merging your agency if it means you will get to keep more of your sale proceeds and the government will get less.

 

The tide of the independent agency business is changing.  Insurance carriers are looking at alternative distribution channels, like selling direct or are squeezing agency compensation like never before.  Technology and competition are making it harder and harder for smaller independent agencies to succeed.  You may need a partner to help you create scale and better navigate this changing marketplace.

 

Economic conditions are unfavorable in many parts of the country and the risk appetite and producer management strategies of your key carriers are unpredictable or may already be affecting your business.  Many insurance companies are demanding ever higher premium volume commitments making it more and more difficult each year to earn contingent commissions or even keep your contracts.

 

Competing against larger, better capitalized agencies and direct writers makes it difficult for your business to grow.  If you are not consistently growing your agency by 10% or more each year, the value of what is probably your largest investment (your business) may be stagnant or in decline. You might be better served by selling to invest in something with stronger or safer returns.

 

Finding and keeping talented employees may be difficult or perhaps, the loyal employees you have kept just can't take you to that next level.  Will you bet your retirement and future financial security on them? Have you been able to build and maintain a true new business sales culture in your agency?  

 

Declining premium rates, exposures, commission rates and lost business may be eroding your business over time faster than you can keep up. Most expert agency business consultants will tell you that for agencies to be successful over the next 10 - 20 years, they need to be doing 15% or more of their agency's total gross annual commissions in just new business each year.  If that hasn't been your agency, where is your investment in your business headed?

 

Many agencies that we talk to are over exposed to one particular insurance carrier or industry segment.  If that carrier changes their appetite or that industry falls on hard times, where does that leave you and your investment in your agency? Can you diversify fast enough without help? Once something like this happens, what will your agency be worth then?

 

You might be just a few years from retirement and if so, who will a buyer look to that will help them perpetuate the agency and ensure the business holds together once you have stepped out?  If retirement is on your radar in the next five years or less, you should be thinking about your sale options now.  Perhaps, you are several years from retirement.  Did you know that your agency is at its highest valuation point when you can give a buyer 5 - 10 years of service and help with the transition after the sale?  Why postpone sale discussions until the valuation of the agency has already started to decline?

 

Technology changes are driving the business to places you and your staff may not be equipped to handle without help.  Is your agency using an industry leading agency management software system?  If so, is it being fully utilized?  Is your agency truly automated and paperless?  How is your agency keeping up with social media, internet search technology and e-mail marketing?  Technology has created staff productivity benchmarks that many smaller agencies just cannot meet.  For example, most leading agencies boast revenue per employee (that's every employee including you) of almost $225,000! Clients and carriers are demanding greater use and access to technology and unless today's agency owner is equipped and prepared to invest and respond, they risk falling behind.

 

If your agency is not experiencing annual revenue increases of 10% or more, it is likely losing value.  If your agency lacks the capital or resources to organically grow at 10 -15% per year, pursue an acquisition strategy, add a new location, join forces with a competing agency, or buy a producer's book, it is losing value. If your overhead and expenses are staying the same or increasing while your revenue is flat or decreasing, you should consider doing something because your business is almost certainly losing value.

 

Simply hoping for an improvement in circumstances or market conditions is not an advisable strategy to pursue for what is likely your largest investment.  Talk to us.  We know exactly how to help you monetize the value of your agency investment and how to help you grow its value over time.  We can buy you out (almost immediately or slowly over time), buy in and work together with you, or if nothing else, just get to know you and hopefully build a relationship that you can draw upon later, if you wish.

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