What is your Insurance Agency Worth?

Most of the calls from prospective insurance agency sellers start with, “What are agencies selling for these days?” or “What kind of multiple can I expect if I sell my agency?” Insurance agencies are like snowflakes, no two are alike. Unfortunately, there isn’t a database of comparable information as there is for the residential real estate business. There’s no uniform formula, method or standardized pricing model when selling an insurance business. Nevertheless, there are several factors buyers request when viewing insurance agencies for sale. Among the handful of items buyers consider when making a purchase are:
  • Size of book;
  • Location;
  • Carriers written (direct or General Agents);
  • Percentage of direct bill or agency bill;
  • How much of the revenue is commission;
  • How much of the revenue is broker fee;
  • Number of employees;
  • Languages spoken;
  • Sellers’ discretionary earnings (earnings without owner expenses);
  • Commission trends for the past three to five years;
  • Are financials available and organized?
  • Will the seller provide financing (carry a note)?
  • Details of the office lease;
  • Other debts (i.e. Yellow Pages, equipment leases, 1099 producers);
  • Loss ratios with key carriers; and
  • Software used, agency management system, rater.
Upon review of that information, buyers should be able to determine a price and submit a letter of intent to the seller – and if accepted, begin the due diligence process. Due diligence will include but is not limited to:
  • Confirming the income statements against the actual commission statements;
  • Reviewing taxes, profit and loss, and other financial data for one to five years (varies by buyer);
  • Reviewing loss ratios;
  • Office leases; and
  • Interviewing ownership regarding day to day operations.
Again, this can be a short list for some and a long list for others. Not all buyers will ask for tax returns, but they will ask for commission or bank statements to confirm the seller is receiving the commissions in its profit and loss statement. Having an organized presentation for prospective buyers makes all the difference in the world. It should not take a week to send an income and expense statement to a prospective buyer. Buyers should not have to search for, wait and hope to receive information about the agency when requested. It should be readily available in a format that doesn’t disclose the agency name, client names or other confidential information. Sending basic financial data is the first step in the selling process. If buyers have a difficult time obtaining the information, they’ll immediately lose interest in the business. By organizing the data necessary to sell the agency ahead of time, the seller will be a few steps ahead of the competition and make a great first impression to prospective buyers. Time is well spent preparing and organizing financial data for potential buyers to review. Selling an agency is not a long, complicated process – unless the owner is unprepared. Hiring an intermediary to prepare for the selling process is a great idea. It allows the owner to continue to run the business, maintain confidentiality and only meet pre-qualified buyers. The last thing an insurance agency owner wants is prospective buyers calling the office asking information about the agency for sale. Owners have a much better chance at selling the agency than someone randomly coming along and buying it. (Sellers need a proactive campaign to successfully sell a business). An intermediary can help match an agency to a buyer that does similar business, which will make the selling process a positive experience. The bottom line is, if you fail to plan, you plan to fail.