I’m going to make some statements about insurance agency sales in this blog that I believe are true, but there is no way to determine if they are factually correct. As we all know, if you read it on the internet or hear it on the news, it must be true. My facts and opinions are based on years of asking questions and personal observations. Someone recently told me that one in four insurance agents will be gone by 2018. They didn’t mean that in the detrimental sense of the word, but rather that they will have retired from their agencies. It is difficult to imagine that one-fourth of the agents will be no longer involved in the industry in less than two years. I have no idea whether this is factually correct, but it doesn’t seem unreasonable.
This same individual also mentioned that the medium age of today’s agents is 59. I’m not sure if that is true either. The individual is in his early 40s. Everyone might just seem that old to him. He felt strongly that around half of the agents that were 59 or older do not have a perpetuation plan in place. Once again, I have no conclusive proof of this statement, but based on our personal observations, his estimate seems low.
We hope that you’re planning to stay in the game a while longer. With so many agency owners in their sixties, Sukay & Associates is planning a couple of very busy, successful years. Just because you are planning on sticking around for a few years doesn’t mean you should leave your insurance agency’s future to chance.
Do as I say, not what I do
You’ve spent your career advising your clients to how to best protect their lives, families, and belongings through comprehensive insurance planning. Now it’s your turn. After all, planning is the foundation in the success of any business and life. It also includes creating and executing a strategy for the orderly transition of your agency to a new owner, whether it’s to a family member who’s been working in the firm, to an agency team member, or to someone from outside the company.
We are working on several situations at the moment. Two clients have engaged us to market their companies in early 2017. During the next several months, we will assess their goals. We will then develop a financial template for the Pro Forma earnings projections. We will also have a draft of the Marketing Materials completed. Once the client has made the decision to act, we will move quickly and efficiently. We love clients that undertake a process and don’t just react to an inquiry from a potential buyer.
Just this week we discussed a disaster situation. The sole owner died after an extended illness. He left no plan to perpetuate the business. Many things could happen and most of them are not good.
Getting started
Our most successful clients who have perpetuated their business have planned the event for years. The perpetuation of your business is a marathon, not a massive sprint to get everything done at once. In an ideal world, if you’re in your late 50s or 60s, you should have successors in mind at your agency that are in their 40s. Those same 40-year- olds should look to develop 20-somethings to move into their roles. A good question to ask is, “Is that necessary if I intend to sell the agency to a third party?” The answer is an emphatic yes. It gives you choices, you can sell to the internal group or to a third party. Most importantly, your agency becomes more valuation to the third party if you have a transition plan in place.
Get the right advice
Preparing for your agency’s succession and perpetuation planning isn’t something that can be done in your spare time, on your vacation or during your drive to and from work. Last fact that probably isn’t true. We have seen everything so we know how to fix things. Yes, we believe that we have never seen a problem that we can’t fix. There is not an agency operating today that doesn’t have a few issues. However, I feel confident that we haven’t seen everything. This week’s lesson was finding an agent with a terminal disease without any plan to perpetuate his business.
What about financing?
Most internal perpetuations fail because of financing. A client asked me about the options to finance an internal perpetuation. My answer was that he was only limited by our collective imaginations. In addition to some very simple loan options, you can offer any number of financing structures for those in the firm and those coming on board. These can include stock redemptions, an employee stock ownership plan, a deferred compensation plan, or even a gifted stock program. Any of these help with the transition from you as the current owner to soon-to- be owner(s).
Plan, then move forward
At the end of the day, perpetuation takes a great deal of planning. As you had many visions of the future when you first began, now it becomes a case of doing a brand new set of planning, both for your future and that of those who will be your successor. Plan well, and plan wisely.
If you are one of our clients, we will help ensure that the facts surrounding your perpetuation will tell a very good story.
What is the Value of Your Insurance Agency?
As financial advisors who represent insurance brokers in business transactions, we are commonly asked one question “How much is my agency worth?” It is the one topic that each and every agency owner wants to discuss. It would be nice if we had one simple answer; unfortunately, there is no simple answer. Click below to download our comprehensive whitepaper which details “The 9 Factors That Indicate Value”.
