20 Tips For Prospective Agency Buyers

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Sell your insurance businessBefore you buy an agency, check out these tips.

If you’re planning to purchase an agency, these guidelines are essential.

  1. Do a thorough investigation of the agency in question. Look at: Its five-year figures; its relationship with its companies; the breakdown of its premiums (Commercial Lines vs. Personal Lines); its history in regard to ownership, claims, employee agreements, and prior Errors and Omissions claims. Find out which carriers it has lost. Also, take a look at the accounts receivable. Does the current agency/owner let payments ride? If it’s tightened, will the accounts go elsewhere?
  2. Take a good look at the other agency’s loss ratio, especially Personal Lines. Some companies today are gearing future commissions on the last three years’ loss ratio.
  3. Get an independent appraisal by a consultant.
  4. Determine the average age of at least the key accounts. People like to do business with their contemporaries.
  5. If possible, do your own financial analysis and have it checked by an accountant.
  6. Determine how the newly formed agency will work. Deal with the “nuts and bolts” of the agency’s operations.
  7. Talk to carriers about the agency in question. They’re excellent information resources.
  8. Make sure that the deal will pay for itself. Structure the terms so that the repayment plan fits into cash flow. If it’s not self-supporting, it’s not going to work.
  9. Keep the deal simple so everyone concerned will understand it.
  10. Be open with the seller. Once proposals are created (structure, business plan, and cash flow), lay them out for the seller, so that there won’t be any surprises.
  11. If possible, deal with agents you know.
  12. Work out the details with the other principal(s) personally. Don’t let lawyers and accountants in on it until everyone is ready.
  13. Achieve a good personal fit. This is important, not only on the personal level, but also in regard to the two agencies’ philosophies (i.e., fair treatment of clients and employees, and general business risks).
  14. Don’t let the lawyers change the basic deal, and don’t let it drag. If it does, little things will keep cropping up, and after a while, buyer’s remorse will set in.
  15. Interview key personnel, especially producers and department heads. Be frank and upfront with them.
  16. Make sure that the transaction creates a win-win situation for buyer and seller, or it won’t work.
  17. Beware when buying out of a territory. If the buyer is too far away, it’s almost impossible to keep tabs on what’s happening.
  18. Be absolutely sure that the agreement contains non-compete and non-piracy clauses that are reasonable and enforceable.
  19. If possible, merge the new agency into the existing office. It’s important to achieve direct control.
  20. Retain the name of the new agency by putting the acquirer’s name in smaller print on the letterhead. As time progresses, gradually change the size on the lettering to reflect the current reality.
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