We spend a lot of our time helping owners make the right choices when selling insurance agencies. Our key role is to help owners sell to the right buyer, for the right reasons. We spend so much of our time talking and thinking about the right thing to do that we learn plenty about the wrong things to do.
While every deal, and every agency is different, a lot of the wrong factors are the same. It is funny how often two agencies with different backgrounds, different needs, in different states; will make exactly the same mistakes.
To help you to avoid making some of those mistakes, here’s a list of the most common ‘don’ts in an insurance agency sale.
Don’t…
Look For The Highest Possible Value
This is the most common mistake, because it seems like exactly the right thing to do. It is natural to target the greatest return on your work, but it can’t become an absolute requirement. When you decide to sell, you will encounter a variety of buyers each with its own pros and cons. Factors like the future of the office, your people and your role after the sale are just as important as the agency valuation. You should always choose the buyer that best fits with your goals and values, not the one with the fattest checkbook. Of course, our job is to get the highest possible value from the best matched buyer.
Wait Until The End Of Your Career To Sell
Following closely in second place on the most common mistakes list is waiting until you are ready to retire to sell. While your preference might be to retire immediately after the sale, it is dangerous to leave that as your only option. If you do you could miss an opportunity to sell the agency for a much greater value. In fact, your decision to sell could reduce the value. Buyers prefer to sell to owners who can offer continuity and remain in place for a few years. Most deals include an Earnout. You need to plan to be around at least during the Earnout period.
Sell Before Year End
Many owners contact us in September or October and tell us they want to sell before the tax rate changes at the end of the year. While tax will affect your net proceeds, forcing through a sale is rarely the smart option. If you have had this idea, it’s likely that other owners are thinking the same way. That means higher supply in the market, which will only serve to reduce the transaction value, as buyers know they have plenty of agencies to choose from.
Wait For A Hard Market
The ‘hard market’ theory suffers from the same problem. When premiums are higher, insurance agency revenues are higher. Which means values should be higher. However, supply of agencies for sale also goes up, with the same result as mentioned above. Buyers are able to offer less money, because they know that there are other options if you turn them down. This is also a very risky strategy since markets change rapidly.
Be Convinced To Sell
Both of the above situations often come about because an owner has read, or heard, about the potential dangers of missing out on a hard market or being stuck with a higher tax rate. Whatever the reason, as an owner, you should never allow yourself to be convinced to sell your business. The decision to sell should always be yours, and yours alone.
Sell Before You Are Ready
Above all, you need to be ready to sell the agency. Selling your insurance agency involves handing over your life’s work and legacy. It also means a complete change in your day-to-day life. If you are not ready for that, you may come to regret it.
