The end of the year is a time that a lot of insurance agency owners dread. If you’re not having a good year, you already know that it is going to be a bad year. It can still be hard to see it on paper. Even the owners who know they have had a good year don’t enjoy looking at results. They know it might be the last time the results will be that good. That can take a little from the celebrations.
When you do sit down to look at your end of year results, you will be in one of three positions. Each one offers different challenges, different opportunities and provides food for thought.
The Bad Year
Let’s start at the bottom and work our way up. You will already know you are in this position. The results will just confirm it. When it is confirmed, some owners might decide it’s the last straw. If this is the beginning or middle of a downward slide, you might start to think about selling your agency. Selling is usually done with a high valuation in mind, but it is important to consider damage limitation. Selling after a bad year is never a great idea, you just need to decide if it’s the lesser of two evils.
We had a client who could have sold five years ago when his revenues were $5.0 million. He declined a premium offer. We just performed a valuation on his behalf. His revenues have declined by 32%. I’m sure that he wished he had sold in 2007 at the end of his “Bad Year.” His valuation was considerably lower than 32% of the 2007 valuation. Most of the revenue loss went straight to the bottom line.
The Okay Year
If you haven’t figured out what kind of year you have had yet, you are probably in this group. You haven’t seen much growth, but you haven’t had any significant losses either. Selling may be the furthest thing from your mind. With a hard market on its way, you probably want to stay the course and wait for growth. That may not be wise. Stagnation in a business can indicate a number of things; imminent growth is rarely one of them. It may be that now is the time to seek a merger with another agency. A bit of aggressive expansion or some significant change might encourage a bit of growth.
The Good Year
If you’ve had a good year you probably have mixed feelings. On the one hand, your agency is on the up and your legacy is growing. On the other, what happens if this is the peak and you missed it? Good results can often be the most difficult to deal with. The temptation is to do nothing, but ‘nothing’ is never a long-term strategy. The other option may be to take the risk that this is the peak and sell. You may never have revenues as high as you do right now, so you should capitalize.
Results Aren’t the Only Reason to Sell
In each of these situations, there is a clear argument for selling your agency. You may have read them thinking, ‘You’re an advisor who relies on owners selling agencies, you would say that.’ Which is exactly why I’m saying this, you should never let results alone dictate your decision to sell. No matter what your results look like, you can make a rational argument for selling. In order to make the decision, you need to look deeper.
You shouldn’t sell your agency until you’re ready to sell for the right reasons. Those right reasons depend on a lot more than annual results.
(Not to distract from the message intended with this blog that you need to look deeper than the financial results to make a sale decision, don’t wait until the end of the year to know your results. We are always shocked when agencies don’t know their results until the end of the year. You should close your books monthly. Anything less than quarterly is simply unacceptable.)
If you are still unsure where you lie at the end of the year, Sukay and Associates are happy to offer you a free consultation to discuss your goals, the value of your agency or to develop a plan for the future.
