Is Taking a Vacation a Good Way to Increase Agency Value?

By and | October 5, 2015

Summer is over and the kids are back in school. Many of us spent a week or two away from our business. It is not easy for business owners to walk away from running their business for any length of time. In this age of mobile phones and the Internet, there is a good chance that during vacation, some of us connect with our clients or do some other work. Today’s business ethic seems to be 24/7. However, does that increase agency value?

To answer that question let’s do a thought exercise: What type of business is more valuable to a buyer – one where the owner is a critical component or one where the owner is just one part of a well-oiled machine? As M&A consultants, our vote is for the latter. Buyers prefer businesses that run on somewhat close to autopilot.

Here’s a story from a few years ago about one of our very successful insurance agents, let’s call him John.

John generated all of the business for the agency and had a staff of four. Clients called him when they had any issues or general changes to their policy. John was technically savvy and enjoyed solving his clients’ problems. He would delegate the mundane issues and changes to his two CSRs. His part-time bookkeeper was able to get the job done under his continuous guidance. The receptionist also was a file clerk and CSR assistant. All indicators showed that John seemed to have a successful business.

John made lots of money. His profit margin before his compensation was more than 45 percent of revenue. Working with John presented a problem with us as his business consultants. He was making good money, he delegated some of his work and his business was doing well. So, with all of his success, how as business consultants, could we help him reach his goals?

The one thing John did not have was a great balance between his work life and his personal life. He spent most of his time at work. In fact, the business was really dependent on him. Over the years, we have worked with many business owners to reach a desired balance between work and their personal life. It helps to put things into perspective and make work just one part of life.

John also did not have a defined exit strategy, which is important at any age, and should be mandatory after an owner is past their mid-50s. John was 59 years old. Creating an exit strategy also helps clarify the direction and purpose of the business. Successful business owners use the plan to exit the business tomorrow, as a foundation to build their business today.

Bucket List

One of the exercises we did was to work with John to create his “bucket list.” He loved sailing since he was a teenager. His business, however, only let him sail just a few hours on the weekend every few months. One of his dreams was to sail from Northern California to Hawaii. Never having sailed more than 50 miles at a time, the 2,400 miles to Hawaii seemed like an impossible dream.

Aside from the need to build up his sailing skills and experience, it did mean that John would be away from his business for about 30-plus days for the one-way trip (he would fly back home). John said, “It won’t work. My clients will leave without me here!”

The staff was not excited about John seeking his dreams. “How can we maintain the business while you are gone?” they asked. John was an integral part of the success of the business. For some owners, this is a badge of honor. However, for sellers, this is a hurdle to overcome.

The good news was that John had a time horizon of at least one year before his sailing trip to Hawaii. We worked with John to design a plan that allowed him to transition a large amount of his client importance and role to the staff. This was not an easy transition for John from a psychological perspective. Fortunately, it ended up being easier than one would assume.

John was starting to see that going for his dream sailing trip to Hawaii would have all sorts of great benefits. First, he would need to train for the trip. This was a great way to spend time with his wife and family. To create the time to train, he would need to transition a lot of his work to the staff. John then learned that by having the staff do the work, he would have a more valuable business and a more attractive firm to outside buyers.

The first step was to work with the people John hired as CSRs. We noticed that they had great attitudes and were very good at working with people on the phone. In reality, they were reasonably skilled in dealing with client issues. However, John just did not let them handle what he thought were complex issues. We created a plan with John and the CSRs to train them on all the technical issues that they would need to handle in order to replace John during his absence.

Our review with the bookkeeper showed a different story. It was clear that the person was not good at the job and also had a bad attitude. Once John understood that this person was a barrier for him to reach his dream, he fired the person and hired an experienced bookkeeper.

We developed a training schedule for the new bookkeeper to learn the agency management system and the unique characteristics of an insurance agency.

Almost right away, the CSRs were excited to handle the more complex work with the clients. They were energized to had more responsibility and flexibility in their job. The new bookkeeper worked out well once she was past the learning curve. In fact, she refined the process to cut the work by a third to also allow for some time off.

Amazingly, in less than six months, John felt confident that his staff could handle the work for the 30 days he would be gone! The hard work that John and his staff completed put the business on autopilot. John now had the time to focus on the two things that energized him – spending time with his family and generating new sales.

John’s sailing trip to Hawaii was a wild success. He was able to cross one item off his bucket list. His staff was able to run the business for the month that John was gone. More important, John’s perspective on his business drastically changed. He learned to work “on” his business and not “in” it as much. By the way, there is an excellent book on this called the “E-Myth” by Michael Gerber.

After his sailing trip, John never did business the old way. He focused on sales and the strategic management of the firm. He eventually hired a sales person and then the firm really took off. During this time he refined his exit strategy. Three years after the sailing trip he sold the agency for at least twice the price he could have received before the trip.

John’s story was a great case study for how to build a better business, improve the business value, balance work and personal life and start on an exit strategy. This story had it all.

Lessons Learned

The primary lessons that business owners need to learn from this story are:

You are not your business. It is important to have a life outside of business.

It is important to hire the right people and train them to do the work, so owners can delegate.

Once No. 2 is set up, owners need to focus on managing the business and not work “in” the business so much.

A business is more valuable to buyers when it is not solely dependent on the owner(s), especially if they are retiring.

So, if an owner wants to improve their business – they should plan an extended vacation! The staff, family and maybe even the clients will be glad they did!

About Bill Schoeffler

More from Bill Schoeffler

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-936-6565. Email: More from Catherine Oak

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Insurance Journal West October 5, 2015
October 5, 2015
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