Selling the Agency on Your Timeline

March 16, 2021

Last fall, I received a phone call from Mark, an owner of a successful multi-generational insurance agency. Mark is in his late 50s and has been running the family agency for the past two decades. Mark was stressed out over the thought of selling his agency. He had multiple offers from competing agencies that were interested in acquiring him. Mark was seeing dollar signs as the valuation multiples were at an all-time high, and he felt as if all his competitors were selling to larger agencies. He felt he should be selling his agency to take advantage of the market. Mark felt immense pressure, but he was not sure if he was ready both emotionally and financially to sell his agency. He wanted to explore the 4 Cs of selling his agency:

  1. Clock – How much longer do you plan on working?
  1. Compensation – How much money do you need to support your lifestyle and that of your family?
  1. Culture – What is the culture of the agency you are considering selling to?
  1. Calculation – How is your earnout calculated?

We took Mark thru our planning process, first understanding what his personal goals were and what his vision was for himself and his family after the sale of the agency. We knew that before we could review the offers he received for the sale, we would need to get a handle on the first 2 Cs: Clock and Compensation.

Running the Numbers

The answers are never black and white because Mark would be willing and thinks he could work longer for the right fit agency (which then dives into the Culture question), but for the right amount of compensation, he could see himself retiring sooner. Based on his lifestyle needs, we were able to calculate the amount of money he would need to realize after-taxes from the agency’s sale or how much he needed to save from now until retirement should he decide not to sell his agency. The lightbulb went off in Mark’s head when he realized he is generating enough free cash flow from the agency that if he continues to aggressively save for the next five years, he will not have to sell the agency to meet his goals. This was truly a stress breaker for Mark because it relieved the inner pressure he was putting on himself to sell the agency today.

Importance of Culture

We then reviewed the offers Mark received from the potential acquirers knowing that he did not have to sell to meet his goals. When looking at the offers, it became apparent that the agency he thought was the best cultural fit was offering the least amount of money. In contrast, the agency that offered the most amount of money was not a good cultural fit. The timing of the sale and the amount of money being offered did not align with Mark’s end goal.

After going thru the 4C’s, Mark was able to crystalize in his mind how long he wants to work, and for now, he wants to keep working for the foreseeable future. Based on his clock, compensation needs, and culture decision, he does not feel the need to accept an offer today. Mark realizes the value of his agency could be less five years from now, and he is willing to take that risk knowing that he is driving the process and not letting the euphoria of the market force him into a decision he will regret. Going thru the process today has made Mark more confident and eager to stick with HIS plan.

BDF’s Commercial Insurance Practice Group understands equity compensation and the valuation of a 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.

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