How to Sell Your Insurance Agency

February 6, 2017
By: Voldico

Carefully planning and executing the sale of your insurance agency is critical for successful results!

Whether you’re planning to retire or you simply want to pursue other career opportunities, there are several key points to consider when planning to sell your agency. Here are five factors to examine as you begin the process: 

  1. Plan your exit strategy 
  2. Determine your agency’s value
  3. Define what you are selling 
  4. Decide if you will hire a brokerage firm 
  5. Establish the terms of the sale

Five Key Points for Selling Your Insurance Agency

Plan Your Exit Strategy For The Agency – In Advance!

The first step in selling your agency is to work on an exit strategy. An exit strategy should be carefully planned and include ideas about your future goals, selling strategies, business valuation, sales terms, and who (if anyone) will help you manage the sale.

This plan should begin a few years prior to selling – anywhere from two to five years is ideal. This provides enough time to develop your sales strategy, conduct the necessary research and ensures you find the deal that best matches your goals and expectations. Two to three years also provides enough time to clean up the agency’s financials, which creates a more appealing sale to potential buyers.

Determine Your Insurance Agency’s Value

Remember that value, price and net proceeds from a sale can all be different. Value is a theoretical benchmark. Price is the agreed-upon number of dollars it will take to transfer ownership between the buyer and seller. Net proceeds are the actual dollars the seller keeps after taxes and other expenses.

There are some general variables which impact how easy or difficult it will be to sell your agency. Buyers are looking for a return on their investment and assurance that the business will remain stable after the sale. Make sure all of these factors are considered before pricing and placing the agency on the market:

  • Agency location and the number of offices
  • Revenue history (including growth rate)
  • Cash and asset management
  • Reputation of the agency and client retention rates 
  • Sales management
  • Employee quality and productivity, especially key producers
  • Dependency on large accounts or specific industries
  • Quality of insurance markets
  • Technology platform and/or age of technology

Define What You're Selling

If you own the office your agency is located in, this creates an additional set of variables to consider. At what price are you willing to lease the space to the buyer? Are you willing to sell the building if a buyer only wants to buy it? Answer these questions before putting the agency up for sale. 

Selling the agency and real estate together can greatly complicate matters and make for a more difficult sale. As an agency owner, consider selling each asset independently. This option offers the greatest flexibility to potential buyers.

Decide If You Will Hire A Brokerage Firm

When selling your insurance agency, there are many benefits in hiring a seasoned and qualified advisor. It is critical to perform due diligence and to assess risk management needed to ensure you are in the best position possible.

A good broker will advise on when to sell, whom to sell to and what to expect. Consulting firms that specialize in insurance agencies work with sellers and buyers to determine the best fit, resulting in sales that are more successful. 

Establish The Terms of The Sale

When you sell your agency, the goal is to get a fixed price—with the largest cash payment possible. Your buyer, on the other hand, wants to put little down and pay a commission percentage over years renewed. In other words, you and the buyer usually have opposite goals.

Most deals today tend to be asset deals based on retention of the business. Retention can be limited in scope to just the riskier parts of the book of business. Terms typically include a down payment and a balance payoff over a certain number of years. Keep in mind everything is negotiable and it is in your best interest to work together and maintain full disclosure by all parties involved. 

Voldico offers a unique and comprehensive Perpetuation & Acquisition service that allows you to sell and transition out of the industry over time. Want to learn more? Click here to download our free info sheet or get in touch now.