Selling an Independent Agency When the Sole Proprietor Passes Away

In the insurance industry, the majority of independently owned agencies are smaller operations with a single office. An agent with a three- or four-person support staff will build a profitable business over 15 or 20 years, establishing a loyal client base and earning respectable revenues, in hopes of some day selling the agency and enjoying a comfortable retirement. But, what happens to the business if the owner dies? When a sole proprietor owns an agency with no junior partner to take over the reins should they pass away, family members often find themselves searching for guidance on the next right steps. If no one is prepared to take over the agency and continue operations, then finding a buyer may be the best course of action. Here are several factors to consider for contingency planning that can make the sales process easier.

Make Information Accessible
As an agency owner, you want to leave your family with a blessing, not a burden. Even if you are not planning to sell your business for several years, you should put together a folder of documents with the firm’s current valuation and financial reports, including a balance sheet and profit and loss statement, and update the file every year. You also want to include information about the carriers with whom you work and the type of coverage you offer from each one, as well as contact information for the main office. If you pass away unexpectedly, whether from an illness or an accident, your next of kin will have easy access to information about the value and financial health of your business as a starting point for discussions with an experienced business broker or potential buyer.

Provide a Financial Buffer
As the sole proprietor, you are the most essential company member. In addition to having a standard life insurance policy in place to provide for your family members, consider purchasing a keyman policy on yourself to cover any losses that the business may incur after your death. In a sole proprietorship, you are the company, and if you’re not there, the business can fold fast. The policy benefits can make up for a drop in production and ensure that your staff is protected financially while also buying time for your family to put your business affairs in order.

Minimize Your Debt
If your business is carrying debt or operating at a loss, those obligations are transferred to the executors of your estate when you pass away. Put together a plan to pay down lines of credit and other debts more quickly to minimize the risk that you will leave those liabilities to your heirs. You may want to increase the amount of your life insurance benefits, as well, so that your executor will have sufficient assets to cover the losses without having to take additional monies from the estate. In addition, make sure that you have a will in place. The last thing you want is for the state to decide who gets what in the event of your passing.

Have an Honest Dialog
Pre-planning can help minimize the burden on your heirs and ensure that your family knows the right course of action to take if you pass away. Don’t shy away from candid conversations about your business, and make sure that at least one person knows where to find the appropriate documents for your agency and bank accounts. Also, discuss in advance the need for family members to maintain confidentiality so as not to alarm clients or competitors and protect the value of your sole proprietorship.

Springtree Group has particular expertise in managing ownership transfer events for small and mid-sized agencies earning less than $5 million in annual revenue. We follow a four-step process to facilitate the sale of an independent agency, which includes:

  • Deal origination to confidentially match buyers and sellers
  • Qualification and negotiation
  • Deal structure and financing development
  • Due diligence and closing processes

If you are considering selling your business or want to make sure that your family has the information they need in the event of your passing, we invite you to contact us online or call (972) 395-8811.