What’s Next for Your Agency Perpetuation Plan?

By Keith Mangini | November 21, 2016

You’ve built a successful agency and are now starting to look ahead to retirement. What’s your exit plan? What do you need to start thinking about today as you plan for the transition of your business?

The absence of a good perpetuation plan not only can affect an agency’s value and your retirement date, but also the ability to fund such a transaction.

What steps can agency principals take now to maximize the value of their agency? One way is to grow your agency’s book of business, including growing both organically and through acquisition.

“A valuable agency is one that can not only grow organically, but also can grow by making strategic acquisitions and folding them in successfully,” says Robert J. Pettinicchi, chief lending officer of InsurBanc.

The absence of a good perpetuation plan not only can impact an agency's value and your retirement date, but also the ability to fund such a transaction.

Although there are only weeks left in 2016, it is not too late to do something positive today to improve your agency’s value. A current best practice is to establish a line of credit that can be used for small agency acquisitions that will help grow your book of business and increase the size of your agency, maximizing its value. This will give you more options for the transition of your business.

Due to competition, opportunities to purchase books of business to complement your agency, while fewer, can come up quickly. A line of credit positions your agency to be ready to buy ahead of the competition. Another option is to take out a bank term loan to recapitalize the business, refinance a variety of agency debt and possibly take out some capital. The economic and tax picture may be different in 2017. Tax rates may, and likely will, change next year with a new administration and a change in the congressional majority.

It is highly recommended that, with so much at stake, you get a valuation by industry experts early on when putting together a perpetuation plan. The cost that these industry professionals may charge is far less than the amount of money that could be lost if the transaction is structured improperly from a tax or legal standpoint.

The services of industry experts will undoubtedly help to avoid costly errors and identify opportunities. You will also want to make sure your bank can provide the capital you need. It is important that a lender understands agency value and can provide the proper amount and sustainable structure of debt to make the transition work smoothly from a financing perspective.

From a lender’s perspective, the ability for your successors to obtain financing will depend on a well-crafted perpetuation plan and a well-run agency. Everyone who is part of building the plan will have a vested interest in its success and in your agency’s ability to maximize value.

Take steps today to maximize your agency’s value for the future, and to ensure that you have attractive alternatives available when you are ready to perpetuate. This can include selling the agency internally to a family member or key employees, or externally to another agency or third party.

Regardless of whom the next generation of ownership might be, the best perpetuation plans are flexible to change, take time and effort to prepare, and allow for the selling generation to achieve its retirement goals while enabling the successor generation to purchase a business with a stable financial footing.

About Keith Mangini

Mangini is vice president, commercial loan officer at InsurBanc, a division of Connecticut Community Bank, N.A. InsurBanc is dedicated to providing agency financing and deposit services to independent insurance agents. Email: kmangini@insurbanc.com. Website: www.insurbanc.com.

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Insurance Journal West November 21, 2016
November 21, 2016
Insurance Journal West Magazine

Top Personal Lines Retail Agencies; Assisted Living / Long Term Care; Contractors & Builders