How to Drive Value Before Selling Your Agency

Why is it that some insurance agencies sell within a matter of weeks, while others linger on the market for months, or even years? Although vetting qualified buyers and negotiating financing arrangements can take time, the real or perceived value of the business is often the true sticking point. If you are considering listing your insurance agency for sale in the New Year, focusing on certain value drivers can increase the likelihood that you will get a fair asking price in a shorter time frame.

How Buyers See Your Business
As an insurance agency owner, you know all the ins and outs of how your business operates. Depending on the age of your agency and the tenure of your office staff, certain tasks may happen almost as if by rote. Your producers know the drill for generating quotes and submitting new business. Your office manager has a faultless memory when asked where things are filed. But if the systems are processes are not plain to a prospective buyer, they may be wary of taking on unseen problems. Similarly, if you are the one who brings in most of the new accounts, a buyer may wonder how the agency would fare without your presence. By understanding how a prospective buyer sees your business and what buyers look for in an insurance agency acquisition, you can take steps to build value in the buyer’s eyes and create a pathway to a smoother sale. Here are four key value drivers to consider, as you prepare to put your agency on the market:

A Stable and Motivated Team. Most buyers want the agency to continue running like clockwork after your departure without having to hire and train new employees. Having a seasoned support staff and loyal producers reassures buyers that existing clients will receive quality service and new business will keep coming in during the transition. If you are the only broker or there is a chance that your administrative support staff will leave, you may have difficulty selling the agency to a third party.

Streamlined Operating Systems. Many older agencies still run on antiquated computers and servers that have a limited life span. Similarly, administrative staff often learn business processes and procedures from their predecessors, or by creating their own methodology as they go. Investing in newer computer equipment and a robust CRM system to track client accounts, and putting together training manuals for incoming staffers demonstrates to a buyer that the business can continue operating without interruption and is optimized for future growth.

Favorable Financials. Of course, a buyer’s primary point of concern is whether your insurance agency has a stable cash flow and effective financial controls to safeguard continued profitability. Make sure that you can produce accurate financial statements for the past three years, including balance sheets and P&L statements for the agency, and have them verified by an established CPA firm or a business broker, like Springtree Group. If your agency saw a dip in cash flow or profitability in the previous 12 months, you will need to make a strong case for why the decline was an anomaly and how the new owners can increase productivity and decrease costs post-sale.

A Strong Community Presence. The insurance business is built on relationships, and recurring commissions are protected when clients feel cared for and valued. Buyers want to see that your agency is actively engaged in your local community through membership in the Chamber of Commerce or Rotary Club, or by sponsoring area schools and non-profits. Similarly, your insurance agency should have an active social media presence. If you have not done so already, create a profile for your agency on both Facebook and LinkedIn and provide frequent, useful information that can help readers achieve their personal or professional financial goals.

As the agency owner, your role is to create value within your business prior to the sale, so that you can justify a premium price and attract qualified buyers to the table. A seasoned business broker, like Springtree Group, can offer additional guidance on factors that affect the decisions of prospective buyers who are thinking about purchasing an existing insurance agency or book of business. By identifying and strengthening the current value drivers in your business and creating a roadmap to transition the agency to new ownership, you can walk away from the transfer with a tidy sum to carry you through retirement or fund your next venture. To learn more, call Springtree Group at (972) 395-8811 or contact us online.