5 Ways Business Owners Can Maximize Value and Sales Price when Selling an Insurance Agency

At Ganis Consulting, we receive at least 15-20 NEW inquiries every month from agency owners looking to acquire insurance agencies. The deals we close are under $1,000,000 in annual Revenue and many of our transactions are for Insurance Agencies under $500,000 in Revenue. These are usually Owners with a preferred insurance book of business with carriers such as; Mercury, SafeCo, Travelers, Hartford and others. Some are Personal Lines Agencies, some Commercial Lines and many of them are a mixture of both. Over the past 12 years, we’ve participated in over 70 transactions and have spoken to hundreds of agency buyers during this time. I’ve seen Buyers blow up deals for reasons that you wouldn’t believe, but in the end, you figure out why. After doing this for a few years, we came to realize that most Buyers are full of hot air and want to buy an agency, but either can’t afford it OR can’t get out of their own way to close a deal. We love working with Agency Sellers and represent you as if we’re selling our own insurance agency. We’ve never had a seller tell us they were unhappy with the final result. In fact, even when Owners try to sell on their own, then hire us in the middle of a deal, we’ve taken it across the finish line and often times, for a higher sales price. So what’s an agency owner supposed to do when selling an agency? Here are 5 Tips to help you a) maximize the sales price, b) avoid wasting time with tire kickers and focus on buyers.

1. Financials

The Number One Reason Agencies fail to maximize revenue is lack of, or sloppy financial data. Get your commission statements saved in a central location, separated by month, year and carrier. In addition to this, you should have a spreadsheet or some electronic format containing this breakdown. Depending on your size, a P&L is needed and tracking of any retained commissions if you write E&S Business.

2. Confirm the Buyer has Funding

In residential Real Estate, you have a specific number of days to remove a loan contingency before you lose the deal and in some cases, forfeit the deposit. In the Business Brokerage World, no such rule exists. A Buyer could take a deal to the day before closing and suddenly realize they don’t have money. When they back out of the deal, it leaves you, the seller without a buyer and having to start from square one. Requesting proof of funds and/or a pre-approval letter from a bank should be submitted with the initial offer. In some cases, the bank will want to review your financials since they’re lending money against your book. We like to avoid this when possible; there are plenty of buyers out there with cash in hand and we don’t like to put our clients through the blackhole of loan approval for someone else.

3. Tell the Whole Truth and Nothing But the Truth

A white lie or exaggeration during the introduction phase of a transaction can come to bite you at closing. Even if it doesn’t cost you the deal, it could shave money off of the sales price resulting in you netting less than you expected. Being 100% transparent with a buyer is imperative for sellers. The last thing you want to do is end up in a lawsuit years from now or unable to close because you told an untruth.

4. Have Every Prospective Buyer Sign a Non-Disclosure Agreement

It’s perfectly normal to have a good feeling about someone and trust them to do the right thing. The only problem is that there are a lot of bad actors out there and you’re putting yourself at risk when selling your agency. I’ve heard horror stories about buyers talking to marketing reps of carriers about an agency for sale, discuss a seller with competitors and even heard of buyers who show up at the sellers place of business to “check-in”. Do you want someone walking into your agency asking your employees about the agency for sale? Of course you don’t. Have prospective buyers sign an NDA before discussing ANYTHING confidential. Better yet, see number 5.

5. Hire Representation

When selling a business, it’s hard for the Owner of that business to be persistent with a buyer and maintain their leverage in negotiations. If a seller calls a buyer 3-4 times asking when they’re submitting an offer, the seller sounds desperate. When your Broker calls that buyer asking for an offer, he or she is just being a Broker. We can ask the tough questions about agency appointments, proof of funding and other qualifying questions. Most buyers have purchased more than one agency so they’re at an advantage over sellers who only experiences this once. Just because you own an insurance agency, doesn’t mean you know how to sell one. You’ve lived in a home for decades, but don’t you hire a Realtor when you want to sell your house? You will net more money with representation than you can on your own, even after paying the closing commission. You need to assemble a team when selling your agency, why not hire a former insurance agent with 70+ transactions under their belt? There you have it, 5 Ways to Maximize the Sales Price of your Insurance Agency. If you’re considering selling your agency now or within the next year; contact us for a free consultation.