How Do I Sell a California Insurance Agency or Brokerage

Most of the calls we receive 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?” When I first started actively seeking insurance agency acquisitions the man who taught me an awful lot about the process used to say “Insurance Agencies are like snowflakes, no two are alike”. I used to roll my eyes and think, how many times will he use this analogy? After a few years it finally sunk in and I find myself using it on a daily basis.

Unfortunately, there isn’t a COMPS data base like Residential Real Estate for businesses. There’s no uniform formula, method or standardized pricing model when selling a Business.

There are several factors buyers request when viewing insurance agencies for sale, below is a short list:

Size of book
Location
Carriers written (Direct or GA)
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 past 3-5 years
Are financials available and organized
Will the Seller provide financing (Carry a Note)
Details of office Lease
Other debts i.e. yellow pages, equipment leases, 1099 Producers
Loss Ratios with key carriers
Software used, Agency Management System, Rater

Again, these are a handful of items buyers consider when making a purchase. Upon review of this 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 1,2,3,5 years (Varies buyer to buyer)
Reviewing Loss Ratios
Office Leases
Interviewing ownership regarding day to day operations
Again, this can be a short list for some and a long list for others. Not every buyer will ask for Tax Returns but will ask for commission or bank statements to confirm you’re receiving the commissions in your P&L.

Having an organized presentation for prospective buyers makes all the difference in the world. It shouldn’t take a week to send an income and expense statement to a prospective buyer. Buyers shouldn’t have to search for, wait and hope to receive information about your agency when requested. It should be readily available in a format that doesn’t disclose your 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, you’ll be a few steps ahead of the competition and make a great first impression to prospective buyers. Your time is well spent preparing and organizing your financial data for potential buyers to review.

Selling an agency isn’t a long complicated process unless you’re unprepared. Hiring an intermediary to prepare you for the selling process is a great idea. It allows you to continue to run your business, maintain confidentiality and only meet pre-qualified buyers. The last thing an Insurance Agency Owner wants are prospective buyers calling their office asking information about the agency for sale. If you’re selling an agency you have a much better chance at selling the agency then someone randomly coming along and buying it. (You need a proactive campaign to successfully sell a business).

An intermediary can help match your agency to a Buyer that does business similar to the way you do which will make the selling process a positive experience.

The bottom line is, if you fail to plan, you plan to fail.

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