You can’t blame a seller for seeking top dollar for their insurance agency. Sometimes buyers have a hard time coming up with a full cash payment for the agency or need to keep some cash in reserve. Buyers depend on banks, home equity and SBA Loans to make purchases. Often times these options are not only time consuming but can bury a new owner in long term high interest debt.
When a seller carries a note on an insurance agency the buyer avoids borrowing at unreasonable interest rates and can pay MORE for the agency. It frees up cash so they can invest in a new advertising campaign, upgrade technology, hire more personnel if needed and of course have a cushion in the event the agency has a bad month or quarter.
The last thing you want to happen is for the buyer to fail when running the business you sold them. Did I mention the seller can ask a higher price when they’re willing to carry a note? The fact is, MOST businesses that actually sell, have some form of seller financing. Sometimes it takes a combination of a bank loan and a small amount of seller financing to close a deal.
It’s not mandatory to carry a note if you sell your insurance agency and some agencies are sold without seller financing. As I mentioned above, most businesses that sell have some form of seller financing. We specialize in insurance agencies and the ratio of seller financing on the acquisitions we’ve participated in is 70/30.
70% of the sales were all cash deals and 30% of them the seller carried a note.
So, if you’re considering listing your agency for sale, somewhere along the way you’ll probably receive an offer that includes some form of seller financing.
You should give it consideration before deciding you want all cash. It has to be the right buyer, with excellent credit and an A+ track record in the industry. There are many ways to protect yourself and ensure you receive payments as outlined in your promissory note. Often times you can defer taxes by carrying a note as well.
We’re not tax or legal professionals so prior to accepting any offers for your business you should consult with your tax professional and attorney.
If you have any questions about this post or any other areas of buying, selling or operating an insurance agency, please do not hesitate to contact us.