The first time an agency owner typically considers the value of their agency is when they decide to sell it. People tend to not think beyond their current situation so, with no plans to sell, the valuation is ignored.
This could be a big mistake. There are many advantages to knowing the value of an insurance agency, whether it’s up for sale or not.
The Valuation of an Insurance Agency tells you more than just the Price
The valuation of an insurance agency isn’t just a figure; it can provide insight into the agency’s goals and help guide operating strategies in addition to its’ role in perpetuation planning. A lower than expected valuation may trigger the need to take certain financial actions. It could also highlight inherent risks in the agency such as an unwanted concentration.
The valuation of an insurance agency can prompt a sale that wasn’t planned, as well as stop a sale that’s already in progress. You may not realize how much value there is within your agency, or you may have overestimated it, but the only way to know for sure is to speak to a financial advisor and go through the valuation process.
Planning is Easier When you know the Valuation of an Insurance Agency
The real benefit of an insurance agency valuation is the depth of information it provides other than the total value of the agency. The valuation process will highlight your strengths and weaknesses. It will provide you with a roadmap to improve the agency from both an operation and financial standpoint.
Agency valuation is not a stagnant process. Agency values change on a regular basis due to changing market conditions and changes to the risk profile of the agency. As an example, the loss of a significant account impacts both commission revenue and contingency payments. In the not so distant past, a business product line in the construction industry was a major benefit for an agency valuation. In just a few short months, a product line in this industry could have eliminated the majority of an agency’s value. Regular valuations let you know what direction the agency valuation is trending. Understanding how the valuation changes can be very helpful in effective perpetuation planning.
Regular valuations can be justified very simply. Assets that are included in your personal financial net worth are valued on a regular basis. If you bought a large block of Facebook shares during the IPO, would you not frequently determine the value of your investment? Why would you ignore the value of your largest asset? An insurance agency valuation can provide you with useful information for your present and future planning.
Agency owners often develop a simplified method that provides them with a “rough estimate” of their agency’s value. These values are always overestimated and the process does not provide them with any strategic benefits. Valuations can’t be viewed as a cost of business. They need to be viewed as one of the many tools that an agency owner uses to effectively manage their business.
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.
