Strategies for Selling Insurance Agencies under $500,000 in Revenue to Maximize Sales Price

August 21, 2018

Selling an Insurance Agency

Strategies for Selling Insurance Agencies under $500,000 in Revenue to Maximize Sales Price Strategies for Selling Insurance Agencies under $500,000 in Revenue to Maximize Sales Price
At Ganis Consulting, we receive at least 15 inquiries every month from agency owners looking to acquire insurance agencies. They’re not all new, roughly 1/2 of them are repeat visitors checking in to see if we have new agencies available for sale. The clients we serve are sellers of insurance agencies under $1,000,000 in Revenue (not premium, Revenue or Commission Income) with many under $500,000 in Revenue. The past 3 transactions were a mere $900,000 in annual revenues combined. Two agencies were $350,000 each and one was just shy of $200,000 in annual commissions. If we review the last 5 transactions, they equaled $1,581,000 for an average of $316,000 in annual revenues, 2 for 350K, 1 for 200K (that’s the original 900K mentioned above) but one deal was $525K in revenue which means the smallest was $156,000. Like most of you reading this, I love a good bargain and as a business owner; I’m always looking for ways to be more efficient, save money and generate new revenue. Running a business is expensive when you consider Payroll, Technology, Dues, Licensing, Rent, Insurance, Office Supplies, Taxes; the list goes on and on. But there’s a problem with the way smaller agencies are being approached and acquired and it’s costing Insurance Agency Sellers 10’s of thousands of dollars in potential income. Here’s one Scenario: Agency owners contact us about buying an agency so we show them one that’s available for sale. The buyer immediately start telling me how the book is garbage (slight exaggeration, but you get the picture), it’s expensive, the loss ratio is too high, carrier allocation is uneven and of course; the price and terms are just too darn expensive. However; they’re very interested! This is not the exception, it’s the norm. After berating the quality of the agency and poke as many holes in it as their ego requires, they ask for a trove of documents to verify what they’re being shown or told since, “that one guy 10 years lied about their income”. Don’t get me wring, anyone that EWVER buys a business needs to verify the income, but there’s a phase for that and it’s not BEFORE hello! Buyersl have said that they won’t look at an agency for sale because other interested owners. They don’t want “competition” when considering a purchase. This is the same buyer that will entertain dozens of suitors and take a year to sell their agency when the time comes, but apparently the measly $300,000 per year agency isn’t worthy of multiple suitors. Then there are the agency owners that brag about how agencies are worth 3 times whatever the cool metric of the week is, but they won’t pay more than 1/2 that. Is it unreasonable to sell something for what it’s worth? This never made sense to me. Do you remember when you started in sales and someone told you that “Buyers are Liars”? It’s very true in Business Sales and Acquisitions. Let me stress that there are many buyers that operate in good faith, have people skills that Dale Carnegie would envy, are successful in business and are people you love to work with. Unfortunately, they’re not interested in EVERY deal, but at least they’ll tell you they’re not interested or that it isn’t a fit and move on. What I’ve learned over the years is that most “buyers” will never buy an agency because they’re focused on getting a “great deal” or “a bargain” or they’re nothing more than tire kickers. Acquiring an agency sounds sexy. Buying a book of business makes you sound important. Looking for an agency to expand your current business is prestigious. Well, until you execute a deal, you’re a tire kicker. Why am I telling you this? I’m writing this because if you own an Insurance Agency, you’re the greatest acquisition candidate on the planet to someone, you just need to find them. Do you know what wins deals? The right price, the right terms and the right buyer. Most Sellers want the right transaction, not always the highest price. There are dozens of ways to make a transaction mutually beneficial, but it takes a respectful, reasonable buyer to execute and close a transaction. I’ve worked with buyers that write an offer on just about every agency you show, based on what the acquisition is worth to them. They’re diligent, but they don’t let the “small stuff” interfere with their main objective; grow via acquisition. If there’s something they dislike, they account for it in the price or terms of their offer. I’ve spoken to the same buyers for 10+ years (literally 10 years) and they’ve never purchased a book. For 10 years, these agency owners have been looking at deals and never bought one. Think about that. Have you ever looked at something you intended to buy for 10 years, and not buy it? What’s the take away here? Buyers: If you want to win deals, learn how to communicate with sellers and try to see things from their perspective. Be reasonable, respectful and don’t ask to kiss on the first date! If you’re going to lose an agency with a $500,000 purchase price over $10,000, chances are you never intended to buy the agency in the first place. When you calculate a revenue stream over years, acquiring insurance agencies are one of the greatest investments on the planet. Don’t be cheap or nickel and dime someone about to retire. Sellers: You’re great at selling insurance and running an agency, but selling one is a completely different beast. You need a partner to help you sell the agency like you do when selling your home. Just because you live in a house, doesn’t mean you know how to sell one. When sellers call buyers to chase documents, NDA’s, proof of funding, letters of intent or to move a deal forward it weakens your position. When the Consultant or Broker is hounding buyers for information, it’s just the Consultant being a Consultant. When representing sellers, we work on Contingency 95% of the time; meaning that we don’t make a nickel until your agency is sold. With our ability to match you with a buyer that has similar traits to you, we’re able to help you negotiate the best price and terms and our fees pay for themselves several times over. If you’re considering your agency now or in the next 12 months, give us a call for free consultation. We’d love to chat with you.