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As we move into 2023, Sukay & Associates understands the ebbs and flows of the insurance agency world. Typically, the insurance business usually takes a positive turn for agency owners at this time, with big renewals done and vacations scheduled out on the calendar. But this year feels different. We’ve had an influx of calls from agency owners looking to sell their businesses. I am not sure what has caused this trend, but I am not complaining just reporting the news. 

If selling your agency has entered your mind, there are some things to think about:

Do you know the value of your agency? 

Not sure what your agency is worth? It’s crucial to understand the value of your business, regardless if you’re considering selling or not. Here are some benefits to understanding your business’ worth:

Better Knowledge of Company Assets and more informed decision-making both short-term and long-term.

A clear understanding of a company’s value lets owners make sound decisions regarding their business operations, safeguarding them against potential financial loss. Acquiring accurate numbers should be the goal when assessing a business appraisal, as it will provide greater insight into the worth of your enterprise.

Understanding of Company Resale Value

If you are thinking of selling your business, it is important to be aware of its true value well in advance. This will allow you to work towards increasing the agency’s worth and maximize the sale price. Valuation firms can provide tangible, black-and-white figures that prove why a higher sell price should be negotiated. It’s also beneficial to show steady growth of your business over time. 

Obtain a True Company Value

When valuing an agency, it’s important to consider more than books of business and asset totals. Working with an experienced valuations broker is crucial to guarantee accurate numbers. Understanding your company’s value can be the determining factor when looking at selling the business.  The question that is most asked is when should I sell my business and this can give you a better idea of the timing.

Better During Mergers/Acquisitions  

When selling your agency, you should always understand your value to be sure that you have the correct expectations. You need to understand what your company’s value is today and the value it can bring to a potential buyer if it can continue to grow. A buyers goal is to acquire your business or merge with it for as little money as possible. Most offers that are made directly to agency owners that are not represented by a reputable advisor receive 30% less in value than the agencies that are represented.

Bottom line: Make sure you do your due diligence to determine the true worth of your agency!

You should know what your competition is doing. 

Keeping an eye on your competition is essential. You may have seen friends or peers selling their agencies, and it’s important to understand what’s happening around you – this can positively impact your business if you’re paying attention. Some buyers are more adept at informing clients, employees, and carriers after a sale of an agency. In contrast, others may do poorly with the integration process, presenting you with great chances to acquire new customers, and employees

Understand the buyers. 

Timing is important and understanding buyers is always a beneficial part of the timing.  It’s important to know which ones are still in the game and which ones have opted out due to interest rates being too high for them. Many of these buyers need to grow and may become more aggressive when they re-enter the market to make up for lost time.

How long do you want to keep doing what you are doing? 

After selling an agency, the true test of how successful the sale is often seen in how involved the former owner remains involved. How long one should stay involved depends on individual circumstances, and many of the transactions include an earn-out provision.  This allows an owner to get more value for their business if they help the buyer grow the business.  

So you need to ask yourself: How long are you looking to stay involved? In the past, buyers accepted three years as a term of commitment before shareholders retired. Now, buyers of larger agencies are requiring more commitment, demanding that shareholders stay engaged for at least five years or longer.

The current market is seeing higher interest rates for sure but the stronger buyers are still looking for good agencies to add to their growth and are willing to pay for larger top-performing agencies.  The buyers that are already leveraged are going to be more careful because they have a limited amount of funds, so they are going to be more selective.  This will affect the smaller size agencies disproportionately.  

This market is tricky, and it’s important to have the right advisor on your side. Buyers may try to convince you that multiples have dropped due to the current interest rates, but don’t get caught up in the hype. With the right advisor, you can make sure that buyers don’t take advantage of this market and pay you less than what your agency is worth.

Sukay & Associates can help you understand the process and evaluate different options to create a roadmap for success. Contact us today to learn more about how we can support your journey.