How Much is Your 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 isn’t 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;
• Reviewing loss ratios;
• Office leases; and
• Interviewing ownership regarding day to day operations.

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 a difference. It should not take a week to send an income and expense statement. When requested by the buyer, information should be readily available in a format that doesn’t disclose the agency name, client names or other confidential information.

If buyers have a difficult time obtaining the information, they’ll immediately lose interest in the business. By organizing the necessary data ahead of time, the seller will be a few steps ahead of the competition and make a great first impression to prospective buyers.

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. If selling an agency, the owner has 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 match an agency to a buyer that does similar business, which will make for a positive selling process.

Topics Agencies Profit Loss