As an insurance agency owner, you aspire to someday reap the fruits of your labors from building your book of business. That may mean living off the earnings from the sale of your agency when you retire, or using the proceeds from your business to fund a new venture in another industry. Whatever your future plans may be, your exit strategy should address not only the timing of your departure, but who will be taking over your agency when you’re gone. That’s because unless you have a target buyer in mind, your business will be liquidated when you retire or leave this mortal coil. A better option is to sell your insurance agency to a family member, to employees or other principals, or to a third party. The question is, how do you choose which pathway is best?

Family Matters – Selling to a family member is a great exit strategy if the person you envision buying out the agency has both the experience and the desire to take the helm. Rather than make assumptions about a family member’s level of interest, you should speak candidly well in advance of the transition to confirm that they see the value of your venture, share your passion for serving customers, and have the entrepreneurial spirit it takes to own their own business. Your successor also should be knowledgeable about the insurance industry and agency operations for the hand-off to be a success.

In terms of the actual business transfer, you could gradually gift the business to your family member over an extended period, or leverage special financing options that allow you to receive a stream of income in exchange for the business, rather than a lump sum. Another alternative is to craft a buy-sell agreement that specifies the terms of the business sale now while postponing the transfer until a future date. Whichever financial arrangement you choose, bear in mind that the IRS gives special scrutiny to business transactions between family members. Consulting with your CPA, as well as a seasoned business broker who specializes in insurance agency sales, can keep you from unwittingly crossing a line with Uncle Sam.

An Inside Job – In many cases, other employees or partners in the business may be interested in owning the agency after you leave. If retirement is still many years away, consider raising up a young associate to one day sit in your seat. An Employee Stock Ownership Plan (ESOP) can help you structure the business transfer in such a way that the future leadership can buy you out based on the value of their ownership shares. You can also arrange the deal so that you retain a residual interest in the business, with the majority ownership held by one or more other members of the management team. A business intermediary like Springtree Group (STG) can put together a variety of financing options to facilitate the ownership transfer and work to everyone’s benefit. STG also can offer guidance about the best perpetuation strategy for your business, and help you plan in advance for a successful transition.

Third Party Prospects – If you are thinking about leaving work behind in the next couple of years, the current seller’s market presents an excellent opportunity to attract interest in your insurance agency from an outside party. A younger broker in their 30s or 40s may want to run their own shop, or another agency owner may want to fold your book of business into their existing operations. In either scenario, most buyers lack the liquidity to make a cash purchase and will be looking for financing options. Springtree Group specializes in merger, acquisition and transition financing for agencies with less than $5 million in annual earnings, and can provide unique lending tools to ensure a successful business transfer. We have long-standing, trusted relationships with multiple traditional and niche lenders that understand the unique aspects of the insurance world and have experience helping finance agency buyouts. As experts in perpetuation planning, we can also work with you to structure a comprehensive exit strategy that meets your current and future financial goals.

Whichever path you choose, it’s important to create a detailed financial plan and timeline for the business transfer to ensure a successful transition. You also need to confirm ahead of time that your carriers will issue a contract to your buyer, and coordinate the timing to ensure that there is no disruption of service to your customers. Overall, the further out you can begin the planning process, the better your chances of making a smooth (and profitable) exit from your agency. To discuss options for selling your insurance agency, give us a call at (972) 395-8811 or contact us online.