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Clients often ask us, “When is the right time to sell my insurance agency?” My response is simple: The best time is when you’re truly ready. Embarking on this journey requires more than just readiness; it demands dedication and a strong resolve. Completing a transaction involves an immense amount of effort, not only from owners and shareholders but also from individuals within their organizations. The process typically spans around 90 to 120 days, which means diverting resources from their usual tasks. Operations, sales, finance, and other crucial areas are inevitably affected during this transformative period.

So let’s unpack this a little more.

How to know if you’re ready

Are you ready for the challenges that lie ahead? We make sure our clients understand the difficulties they will encounter during the due diligence process. It’s no walk in the park, as it involves answering questions and providing a plethora of documents and information over the course of about a month.

Even if you diligently fulfill your obligations, there can still be discrepancies when it comes to financial matters. For example, some buyers insist on gap accounting, which may be unfamiliar territory for many insurance agencies. This misalignment can further complicate the due diligence process and cause potential issues.

We strive to prepare our clients for these scenarios and guide them through the intricacies of due diligence. It’s crucial to anticipate these challenges and ensure that your business is properly aligned to meet buyer requirements and expectations.

Prepare for the unknown

When it comes to the timing of business transactions, there are several factors to consider. Most buyers tend to conduct the majority of their transactions in the third quarter of the year. This means that if you’re looking to sell your business, you might not receive much attention during that time unless you have exceptional circumstances.

The process of completing a transaction typically takes around six months. This includes finding a buyer, organizing your financials, presenting to potential buyers, reviewing offers, and going through the due diligence and legal processes. From the moment you start the process to the final closing, it can be expected to take around 180 days.

Deals that start at the beginning of the year generally close in the middle of the year, while those initiated in the second half of the year often close before the year-end. We don’t see many transactions beginning in the second quarter, and some deals that start in the third quarter may not close until the first quarter of the following year.

Timing can have tax implications as well. Closing a deal at the end of the year may require you to file and pay taxes by April, whereas closing in the first quarter of the following year allows for more time to complete tax obligations. While these timing trends may vary, this general pattern has been observed. It’s essential to be aware of these considerations when planning and navigating business transactions.

What about buyers?

From a buyer’s perspective, it would indeed be more favorable if deals were spread out throughout the year. A consistent flow of transactions allows for smoother processes and better allocation of resources. Buyers appreciate a more manageable workload rather than dealing with a rush of deals all at once.

Timing plays a crucial role as well. Initiating a deal in the first part of the year tends to result in a smoother process. This is because there is less pressure to cram everything into the year-end. Both parties are not burdened by the additional tasks of closing out their books, making it easier to focus on the transaction at hand.

Conversely, the end of the year can become quite challenging due to a multitude of factors. The time crunch intensifies as businesses and individuals strive to wrap up various financial matters. This increased difficulty can impede the efficiency of getting things done within that timeframe. Moreover, the year-end sees a higher volume of deals being closed. The surge in activity can lead to increased competition and potential complications in negotiations and due diligence processes.

Understanding these timing considerations is essential for both buyers and sellers alike. By strategically planning and scheduling transactions, parties can optimize their chances for success and streamline the overall process.

In conclusion, the decision to sell your agency is a significant one that requires careful planning and preparation. Although there are general trends and considerations to keep in mind, remember that every situation is unique. Thoroughly understanding the process, aligning your business with buyers’ expectations, and navigating the timing complexities are all critical steps in ensuring a successful transaction. Both buyers and sellers should consider these factors and be strategic in their planning to optimize their chances of a smooth and successful sale.

Contact Sukay & Associates today to learn more about the timing of selling your agency.