If you dream of running your own insurance agency, you can follow various paths to make the vision a reality. You could start from scratch and build your client base, purchase an established agency, or purchase a book of business. The latter option often provides an easy point of entry for brokers who are just starting out, as well as a cost-effective option for those who want to expand an existing agency quickly.

A book purchase is basically the purchase of the IP of any agency. You aren’t interested in the signs out front, the office space, the computers, or even the staff. Book purchases are the transfer of clients, relationships with those clients, and the revenue from those client accounts. The key to a successful transaction is understanding what a book purchase entails, and how to determine a fair price for something that is relatively intangible.

Conducting Due Diligence
Before you start looking at a specific book purchase, you should set the guidelines for your search. This includes the type of client base you want to acquire, the price you’re willing to pay, and the geographical area in which you want to operate.

Once you find a book of business that looks intriguing, you need to assess the financial health of the business and whether the valuation is on point. Has profitability for the accounts increased, decreased or held steady over the past three years? What do cash flows look like? Will any large carrier contracts be terminating soon? Are the computer and filing systems used to organize client data easy to use and up to date?

The reason why the owner is selling also could have an impact on the business that you acquire. For example, if the owner is planning to retire, you may need to look at the quality of the client base and level of customer satisfaction. You don’t want to find yourself cleaning up a mess left by the previous owner, who knew they would no longer be the point person for those accounts.

Most importantly, you want to determine whether the asking price aligns with the book’s actual value, and look for red flags in the financials. Because most brokers—and even agency owners—don’t have experience conducting a thorough financial analysis of a business, bringing in a seasoned business intermediary to manage the due diligence process can be beneficial.

Taking the Reins
You should also find out how the current owner plans to manage the transition so that clients are not scared away. Maintaining confidentiality is key throughout all discussions and negotiations, since transitions are the perfect time for a competitor to swoop in and pick up the accounts.

Lastly, you need to know how you plan to finance the sale. Is this a leveraged buyout, or are you planning to finance? How will you get the funding you need? Financing a book of business is a highly specialized deal, so it helps to work with an intermediary both to get the best price for the book and find the right kind of lenders to finance the transaction successfully.

Forging Ahead
A transfer of something so fragile as a book of business can fall apart easily. Relationships are formed over years or decades; trust is established. A good book of business contains clients who are happy with the service and the product, not just the management, and supportive carriers who will be around for the long term. A business intermediary can help analyze your book purchase and look beyond the numbers for factors like stability, organization, and portability.

Springtree Group has decades of experience in the insurance industry and is uniquely qualified to help brokers and independent agencies with buy-outs, mergers, book purchases, and agency sales. To learn more, call our office at (972) 395-8811 or contact us online today.