All good comments. But the steps to determine the value of an agency aren’t that complicated. 1. Is the agency primarily personal lines or commercial lines. 2. Examine each account to see if there is any internal growth potential (ie: have the auto but not the homeowners). 3. If personal lines account, what is the age of the client. Older accounts will “age’ off. 4. Buyers should NEVER pay up front. 5. Commercial accounts should be examined for retention issues. Are there accounts where the lose of the account will break the agency? Old family friend or acquired by bid. How often does the client bid their account. Those that bid every year are not solid accounts. No loyalty to the agency. 6. The only way to avoid getting burned as the buyer, is to have a payout based on renewal commissions, and a payout period of at least two renewals. If an account is going to move, it will happen quickly. If it “sticks” for two renewals, it will probably continue as a client. 7. Producer books of business. Who owns it. Non compete agreements. Note: Unless carefully written, most non compete agreements are worthless. Restraint of trade / livelihood. AND, as I learned, if you are the outside consultant trying to establish a value, one party is going to think you are wrong. Usually the seller. Too much emotional involvement. Or have a crystal ball.
All good comments. But the steps to determine the value of an agency aren’t that complicated. 1. Is the agency primarily personal lines or commercial lines. 2. Examine each account to see if there is any internal growth potential (ie: have the auto but not the homeowners). 3. If personal lines account, what is the age of the client. Older accounts will “age’ off. 4. Buyers should NEVER pay up front. 5. Commercial accounts should be examined for retention issues. Are there accounts where the lose of the account will break the agency? Old family friend or acquired by bid. How often does the client bid their account. Those that bid every year are not solid accounts. No loyalty to the agency. 6. The only way to avoid getting burned as the buyer, is to have a payout based on renewal commissions, and a payout period of at least two renewals. If an account is going to move, it will happen quickly. If it “sticks” for two renewals, it will probably continue as a client. 7. Producer books of business. Who owns it. Non compete agreements. Note: Unless carefully written, most non compete agreements are worthless. Restraint of trade / livelihood. AND, as I learned, if you are the outside consultant trying to establish a value, one party is going to think you are wrong. Usually the seller. Too much emotional involvement. Or have a crystal ball.