You might be thinking about internal perpetuation planning, with an estimate in your head of what your stake in the agency is worth. Imagine ending your working life, leaving something solid in place that will continue forward. Years of working side-by-side with your partners or shareholders, carving a niche that works in today’s financial markets, using your business acumen to create an agency that employs so many people, is something to be proud of.
Perhaps it is appropriate that internal perpetuation, or succession planning, can be one of the most challenging situations you could face with your insurance agency. Think of this as the final test of your leadership qualities. After making your insurance agency a successful and viable business, the decision to leave it all behind is one of the hardest you will ever make.
The Challenge of Internal Perpetuation Planning
Many owners close to retirement do not plan well for internal perpetuation because they don’t really want to face it. One of the reasons we specialise in insurance industry perpetuation is to help people transition the firm and help it carry on. They might want to plan, in this instance, for other members of their family to take over, or younger partners who will be with the agency for many years to come.
You could also be in a situation where all the major partners are near retirement, and this can be especially risky to transition the agency without causing cash flow problems. A true partnership with internal perpetuation specialists will help you do this. With a proper plan in place to ensure successful ownership transitions, agency specialists will provide a more accurate valuation at the time you wish to sell your stake.
Keeping the Insurance Agency In-House
Internal perpetuation planning is becoming increasing popular as clients want to secure a legacy. Most want to avoid coming across as a Svengali-type character dolling out riches, and simply want to communicate the plan effectively to those who will be impacted by their departure. A few years ago, we worked with an agency whose chief partner died suddenly. Unfortunately, the promised rewards of ownership had not been backed by a written internal perpetuity plan, and this created much frustration and anxiety within the insurance agency. It took years to successfully transition the business as the remaining partners wanted to keep the agency going. It was incredibly important for them to use our services to provide a neutral voice of expertise, in what could have become an emotionally charged situation for all.
Another excellent reason to plan for internal perpetuation is when your insurance agency has major partners who are all close to retirement, and thinking of getting out near the same time. If there are no young buyers to ensure the future of the agency, it is useful to have planning in place to assist accurate valuations near the time each partner retires. Internal perpetuation values are different than external perpetuation values, and if the latter is the option, the value can be as much as 30% higher. This has implications for the partner who retires first, and the client-book value at the time of their retirement. Without a motivated group of buyers prepared to take up the internal perpetuation offer, you may have to move to selling externally. The sooner you know this, the better for everyone concerned.
