Agency owners have a tendency to believe that the most valuable assets they have are their people, their client relationships, and their length of time doing business in the community they serve. While all of those are indeed valuable aspects of doing business, they are not valuable assets.The dictionary definition for “asset” is “an item of ownership that is convertible into cash.” As acquisition brokers and consultants for insurance agents, we frequently talk about the value of an agency’s business assets and how to increase that value so it is maximized when the owner is ready to sell.
Even though nobody would argue the importance of having well-trained and reliable staff, long lasting client relationships, and a consistent presence in one place, none of those things could be considered “an item of ownership that is convertible into cash”. Therefore, they aren’t really assets that a seller can sell or a buyer can buy.
No matter how outstanding your employees are, you still don’t own them and cannot guarantee they will stay now or under new ownership. Likewise, your clients may be incredibly loyal, but you cannot guarantee they will feel the same way about someone you decide to sell your business to.
That brings us to the question then: if great people, loyal clients, and length of service can’t be sold, then what are your agency’s most valuable assets?
They are data and money.
As crass as that may sound initially, the reality is, the two most valuable things agency owners have that agency buyers want, is data about their book of business and a consistent revenue stream from that book of business. In the insurance business, we don’t have a warehouse full of widgets to sell, we don’t own some new technology, and we don’t create or build anything that has value to someone else. The most important thing agency owners possess is data about their clients and transactions, and that data is the source of their commission income.
When making a determination of insurance agency value and price, there’s no question that every facet of the business is considered. And there may be no better “supporting evidence” about an agency’s value than looking at the quality of the staff, relationships with clients, and longevity of the business. But before buyers will consider any of that, they are looking first at the book of business data and the revenue numbers.
That’s why we constantly write about, speak about, and work with our consulting clients on the importance of cleaning up “the back of the house”…the data and the money. Insurance agency owners started as insurance producers, and many are still producing. To become a great producer you don’t really have to worry about the quality and consistency of data that goes into the file or on the agency management system. And great producers might always be aware of how much commission comes with their deals, but rarely do they need to keep those numbers accurate and organized after the fact, except maybe at tax time.
So it goes without saying that writing valuable business might be all about your good staff, your loyal clients, and your length of time in business; but building a valuable business asset, that one day you can sell for the maximum price, requires keeping your client data and your financial activities as clean as possible. They are after all, your most valuable assets.