Why Are You Looking to Sell?

April 23, 2019

“Hi my name is Chris, John suggested I call you regarding my book of business. I am wondering if you can help me understand what the value of my agency is and what buyers are paying the large multiples I keep hearing about.”

Chris is not alone as this is a frequent question from both agency owners interested in selling their agency and solo producers who are exploring the sale of their book. The conversation typically goes like this:

JK: Thanks for the call. Tell me more – Why are you looking to sell?

Chris: I am not sure if I want to sell but I am getting older and I keep getting calls from companies looking to buy and hire me. The prices sound very attractive.

JK: What do you think your book is worth?

Chris: I have heard 1.5 to 2x’s is the value of my book but my client base is unique, and I think it is worth more.

JK: If you were to sell your book would you have enough money to retire?

Chris: (a moment of uncomfortable silence) … I don’t know?

JK: If I paid you 2X the value of your book would you take it?

Chris: (a moment of uncomfortable silence) … I don’t know if that is enough?

JK: How much longer are you willing to or want to work?

Chris: (another moment of uncomfortable silence) … I am not sure. I could see myself working another five years and somedays I would like to stop working yesterday. I started my career in a big corporate environment and I have no interest in returning.

The uncertainty and lack of confidence in Chris’ answers is ok and expected. Most producers spend most of their career building their business and have never sold a business or put much thought into what life would look like after a sale of their business.

There are many factors to consider before even determining the value of your agency, including how much longer you want to work, where you’ll be living, what interests and hobbies you want to pursue and what your typical day will look like post-sale.  Before entering any discussions to sell your book or an agency you should answer the following three questions:

  1. Why would I sell? Think about your options for selling. 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.
  2. Can I work for someone else? 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.
  3. 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. The wealth you accumulate by working longer could impact your retirement lifestyle.

These questions require some self-reflection and often some time to answer. Spend time answering these questions – you can get the maximum value for your agency, but it will depend on when you sell and to who you want to sell. You control your future – don’t let the current market valuation drive the process.

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