When you are in the market to sell your insurance agency, then you can take help from professionals. It will help your insurance business transition go smooth and for a good value. There have been some questions raised frequently, which needs to get resolved. The questions are important and useful for insurance agency owners.
How will an agency owner get the best price and sales term?
Plan the sale and execute a clear and transparent sale process. Provide relevant and accurate details right from the start to avoid any renegotiation. It will allow the buyer to make an offer in less time.
When you sell a insurance agency with the help of professionals, pre-due diligence gets conducted to identify any issues and even the documentation gets analyzed. A detailed summary gets created to educate potential buyers about opportunities and operations. It helps to speed the sales process as the buyers get the information, and they feel comfortable digesting before making a decision.
What steps must an owner take to improve their agency value?
Many steps can be taken to improve agency value, which will help to maximize profitability and reduce perceived risks by buyers. First, let’s discuss growing and maintaining revenue because falling revenue erodes profitability. Take steps to track your revenue sources. From which marketing campaign, are you generating the highest revenue?
The next step is to track the new and renewal returns got from product lines by the insurance producers. It will help to identify what works and what doesn’t. You can even take steps to improve the weakness.
The last step is to review your commission rates as well as contingent earning agreements with carriers. It will help you negotiate compensation with carriers if your agency sustains high production, retention, and low-loss ratios.
Now, let’s talk about the expense side, where the agency operating cost is around 35% to 60% of your total revenue. Therefore, you need to monitor personnel and productivity carefully. Successful insurance agencies adopt the latest technology to enhance their workflow as well as reduce labor costs.
Performance-based compensation plans get developed to eliminate the unproductive employees as soon as possible. A profitable agency maintains its personnel cost around 30% to 40% of its revenue. Potential buyers will reduce the agency value if they will need to totally restructure the staff, operation, and compensation.
Before executing the sales process, several minor expenses need to get corrected. Things like cancellation of ineffective ads, renegotiating leases, and reduce of owners flexible spendings like travel, meals, and entertainment.
The internal issues are known, so the owner’s goal needs to reduce the issues that a buyer may clearly identify and discount agency value.
Will the sales process of the agency take long to complete?
The sales process can get completed in a few months or never. It depends on several factors like the agency, its asking price and sales terms, buyer’s viewpoint, agency’s prep for sales, and the management of the entire process.
Not just the seller, the buyer also plays a huge role. Some inexperienced buyers claim that they don’t know how much they will be able to borrow, while a few intentionally lock sellers in a non-binding purchase contract. They intend to renegotiate after the completion of due diligence.
In general, after signing the purchase agreement, the sales process gets completed in 2 to 3 months depending on the financing and transaction involved. The due diligence process takes 2 to 8weeks, depending on the business complexity.