Key Questions to Consider Before Selling

June 12, 2018

The number of Mergers and Acquisitions of independent insurance agencies were at an all-time high in 2017, and the market remains strong in 2018 as large agencies and brokers continue to buy up smaller firms. The number of buyers continues to out weight the number of sellers which has created attractive valuations and selling terms for owners looking to sell. Rising values make selling an attractive prospect, but owners need to consider what life looks like after the deal. I encourage all insurance agency owners to answer the following questions prior to engaging in any serious sale talks:

1. Why would I sell my agency?

A large payout for your agency is not always a great reason to sell your agency. Think about your options, both short-term and long-term. Do you want to transition your business to family or current employees, or do you want to sell outright? Consider factors like the culture of the acquiring firm, the time necessary for a successful transition and the legacy you want to leave behind. Selling for greater access to markets and better technology tools is much different than selling to cash out for retirement.

The most successful transitions tend to occur when an owner involves their spouse in the conversation.  A spouse can act as a great sounding board because they will take a more holistic view of the owner’s life – connecting the personal and professional life – to help determine if selling is truly the best option for the owner and their family.

2. How much longer do I plan on working?

Know when you would like to retire or move on to the next phase of your life, so you can work toward that goal during the planning process. It is difficult to sit down with an agency owner who is on the final year of their earn-out when they realize they would like to continue working but they don’t want to work for the agency to whom they sold their business. Had they mapped out their time frame better they would have used a different set of criteria when determining to whom and when to sell their agency.

Often owners need to take a cut in annual compensation when selling their agency. Usually the reduction in salary is more than made up with the premium they are receiving for the equity in the agency. However, if an owner has a longer time horizon they might be better off not selling, collecting higher income, continue to grow the business and sell it in the future for more money.

3. Can I work for someone else?

The biggest adjustment agency owners have after selling their agency is realizing they are no longer the boss. The independent, in-charge nature of an owner is what led them to success often leads them to discontent after selling their life’s work to a large bureaucratic corporate culture.

Do some self-reflection to decide whether you can transition from boss to employee if you plan to remain with the company for any time after the sale. Not everyone can or even wants to—many agency owners would rather forgo the financial upside in favor of maintaining their control and freedom.

4. What does my life look like in an ideal world 10 years from today?

Look toward the future and consider where you’ll be living, what interests and hobbies you want to pursue and what you want your typical day to look like 10 years from today. Are you retired? Are you still actively selling insurance?

Agency owners have constructed successful businesses that have provided a great lifestyle for themselves and their family. For some owners their agency is such a big part of their identity that they can’t imagine life without it. For others, they have built enough wealth and interests outside selling insurance that their ideal world looks much different than the one they are living today.  Define your ideal world and then begin to execute toward that vision.

These questions are not easy to ponder, and there are no right or wrong answers. There has never been a better time to sell an agency but selling for money alone will not always provide the long-term happiness and fulfillment that one is seeking.

BDF’s Commercial Insurance Practice Group understands equity compensation and the valuation of the business and uses this knowledge to help insurance professionals develop financial plans while minimizing tax bills. Whether working with a producer or business owner, we focus on one’s individual goals, family involvement and living a full life.

Jim King, CPA, CFP® is an owner and wealth manager at BDF where he leads the Commercial Insurance Professionals Practice Group. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. His focus on creating financial blueprints for his clients has earned him recognition as a “Five Star Wealth Manager” by Chicago Magazine.