Do I Really Spend That Much?

September 14, 2021

“My youngest of four children just graduated college. None of my kids desire to work in the family agency. Multiple competitors want to buy my agency, and my wife Mary and I are ready to travel the world.” These were the first words from Mark, a Wisconsin Insurance Agency Owner that I recently met for a cup of coffee.


Mark is 59 years old and is wrestling with the idea of selling his agency. Mark’s dad started the agency over 50 years ago, and Mark has been running it for the past 30 years. He bought the agency from his mom after his dad passed away, and his hopes of one of his children taking over have subsided now that they all have successful careers of their own in unrelated fields. Mark is a very good producer and has a knack for finding new clients but appears challenged when managing his finances.

Mark and Mary have two homes, four cars, a boat, a country club membership, love to travel, and are very proud that none of their children have college loans as they were able to pay for all their college expenses. The flip side of all of this is they have very little savings outside of the company 401k plan. They want to continue maintaining the same lifestyle in retirement, so they will need the proceeds from the agency’s sale to support their retirement.

Business Valuation

Fortunately, Mark’s agency has a great reputation in his region and does not have to rush to sell his agency as he knows when he is ready, there will be multiple suiters. The initial offers on their agency were between $3M and $4M guaranteed before taxes and not including the earnout portion. On the surface, Mark felt very good about these offers and is strongly considering them. However, Mark has no idea how much money he needs to sustain his family’s lifestyle.

The simple but often overlooked task of reviewing bank statements and tracking spending told another story. So, we sat down and looked at their bank statements and financials. Mark had no idea how many personal expenses are being run through the agency. In essence, they’ve been using their business as a personal checkbook. Golf, travel, cars, and cell phones are good for business write-offs but can be very expensive.

Know Your Number

Now comes the moment of reckoning. They begin to see that the sale of their agency will not generate enough income to sustain their current lifestyle. Yes, they may get $3 million from the sale, and that’s a lot of money. But if they need $400,000 a year to live, it can’t be done on that amount. Not if they expect to live another 30 to 40 years.

It dawns on them, too, that their annual income from the business is much greater than what they would receive if they decided to take an earn-out or work at another agency. So, some tough decisions may have to be made.

Mark is undecided on his next steps, but his choices are clear, and his options are plentiful. He can cut his spending and sell his agency today, or he can defer the sale for a couple of years and build up his savings while continuing to grow his agency. Most importantly, because he has not sold his agency yet, he can make an educated decision as he now knows what his number needs to be to retire successfully.