When you consider your insurance agency’s valuation, there are a number of obvious factors that need to be considered. Agency owners most often look at total revenue when estimating an agency valuation.
There is an infinite number of ways you can value an insurance agency, which means there are a lot of other factors that will affect your agency’s value. Let’s look at some of the less obvious factors affecting agency valuation.
Specialty Business
Specialty lines of business can be a bit of a double-edged sword when it comes to agency valuation. On the one hand, if you have a strong exclusive line of business, a specialty line of business can be extremely attractive to a buyer. If the buyer understands that market and wants to access it, you could end up with an increased multiple.
Unfortunately, that requires a very specific and knowledgeable buyer. If your buyer doesn’t understand your specialty, it could have a negative effect on your agency’s valuation.
Concentration
Concentrations are an overreliance on one industry or client and they may be viewed by some insurance agencies in the same way as specialty lines of business. They are rarely attractive to a buyer. If your business relies heavily on one particular relationship, it will have a negative effect on your agency’s valuation. A heavy reliance on one account creates a huge amount of uncertainty that the current cash flow of the business can be continued. You should expect any concentration or uncertainty to negatively impact your agency’s valuation.
Geographical Location
If you’re selling anything, from property to hot food, location affects the price. Insurance agency valuations are affected in the same way. There will be some prime locations that will naturally add a premium to the agency value, while other locations will have a lower value.
It will come down to the buyer’s preference and what they are trying to achieve with the purchase. As far as agency value is concerned, urban or suburban locations near major metropolitan markets seem to have the most positive impact on valuation.
Defining the value of an insurance agency is a complicated process. The first step in the process is to consider all possible factors affecting your agency’s value. A financial advisor can help you to define the important factors for your agency. Even the ones you haven’t considered.
When is it too early to start planning for the future? Contact us or request a free valuation to determine your next step.
Agency Valuations
As a firm, we believe answering the question “How much is my agency worth?” is part of our responsibility and the foundation of a great working relationship – even if that is further in the future. Because of this we, unlike most firms, offer insurance agency valuations for those who qualify. Click below to apply.
