Solve the 4 C’s Before Selling Your Agency

September 10, 2019

Last month I had the opportunity to moderate an M&A panel at NAHUs (National Association of Health Underwriters) Annual Conference in San Diego. The panel was focused on what agency owners should look for when considering buying or selling an agency. Panelist Mike Deagle of Benaxis and Lily Lam of OneDigital did an excellent job comparing and contrasting the difference of buying a book of business versus buying an agency. The panel sparked many questions from the audience around valuations and the process of selling an agency but most importantly, it served as a reminder of how important it is for agency owners to solve the 4 C’s before agreeing to sell an agency.

  1. Clock – How much longer do you plan on working? When do you want to have the flexibility to be able to retire? Outlining a timeline for how long you want to work is the first step in the process.
  2. Compensation – What is your number? Do you have clarity on how much money you will need to support you and your family’s lifestyle? How does your agency’s current valuation align with how much you need to retire comfortably? How will your annual earnings change after the sale? Having saved assets outside of your agency will provide you with more flexibility in determining the value needed to retire.
  3. Culture – Once you have an idea of what your timeframe is and how much money you need to generate, you need to get a better understanding of the company culture you will be joining. What is the acquiring agency’s reporting structure? Who will you report to? What will happen to your staff after the sale? What decision making authority will you be losing? Where will you be working? Be sure to meet as many employees of the acquiring agency as possible and spend time getting to know the team. Just as you wouldn’t get married after the first date, you shouldn’t sell your agency without spending time and meeting the whole family.
  4. Calculation – Often the most overlooked C is Calculation as this doesn’t impact an owner until after the deal is signed but it’s critical to understand before agreeing to a deal. How is your earnout calculated? Who is responsible for calculating it? How are overhead expenses applied? Do you understand the growth needed to hit your earnout targets?

A successful agency owner is well versed in growing and managing the agency but naturally lacks experience in selling a business as this will be a once in a lifetime transaction. With today’s record valuations it is easy to get excited about the prospects of selling your agency but before getting swept up in the tsunami of sales, slow down and solve the 4 C’s as you might decide now is not the time to cash in.

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.