Selling an insurance agency is not like selling a home or commercial building. There’s no magic formula for determining the value of an insurance agency – every agency is unique. An insurance agency is a business and the financial performance of the agency will make up 90% of its value. There are 2 formulas most buyers use to determine what they’ll pay for an agency.
The first way is a multiple of the agency revenue. You’ve heard the term one time, two times, 1.5 times, etc. The truth is, there’s no set multiple that determines the value of an insurance agency. Many people will call and ask “What are agencies going for these days”? That’s like asking for a ball park figure of what it costs to insure 4 cars and 4 drivers in Los Angeles. It’s impossible to determine the rate without getting detailed vehicle and driver info.
The second way buyers value an agency is a multiple of EBIDTA. Earnings, before interest, depreciation, taxes and amortization. This is basically your bottom line profit. The multiple of profits a buyer is willing to pay will be determined by many variables including but not limited to:
- Commission Revenue
- Cash Flow
- Carriers
- Loss Ratios
- Location
- Staff
- Automation
- Years in Business
- Seller Financing