My experience in working with insurance agency owners is that most have a difficult time planning their retirement. For a variety of reasons, they wait too long.
Many agency owners seem to forego planning because they're having too much fun enjoying sales, their position, and the money they're making. Then, almost overnight, the fun evaporates and they decide it's time to leave. I've seen this happen many times. Sometimes I've seen the change coming before the owner recognizes it. Even if you're still enjoying your role as an agency owner, take my word for it that one morning you'll decide it's time to sell, to slow down, and maybe even to leave.
When that day arrives, you might not be able to sell for an acceptable price if you haven't planned for it. For example, one agency owner recently decided to sell, only to realize at the 11th hour that the entire net on a sale of several hundred thousand dollars would be $4,000 after taxes.
I've also known several agency owners in poor health who continued to wait to sell their agencies. They died before beginning the perpetuation process. As a result, they left their agencies and their families considerably poorer. It's more difficult to sell an agency for a good price after the owner has died.
Even more common is an agency owner who realizes they've lost their fire, but they're not willing to sell yet, and they don't want to make the effort to continue building the agency.
In these situations, the agency usually begins going downhill. By the time the owner decides to leave, the agency has lost considerable value. Several years ago, an agency owner told me he had lost his fire. But, he continued going through the motions of hiring producers (they all failed), moving to a bigger office, and merging. Last year when he considered selling the agency, it was deep in debt, its profitability had decreased, its growth was nonexistent, and it was worth several hundred thousand dollars less than what it had been worth. If you want to maximize your sales price, sell as soon as the fire goes out.
An equally important consideration is deciding what you're going to do all day long in retirement. Since many retiring owners don't have enough to do, they retire slowly. They still see clients, they come into the office for a few hours a day, or they manage the agency for new owners.
These slow retirement options always look better on paper. A position as an ex-owner can be frustrating and can cause friction. For example, the staff may continue going to the ex-owner for direction and the ex-owner may continue trying to be the boss. The new bosses don't appreciate this. Learning how to work for a boss is even more difficult for an ex-owner. After spending decades being the boss and reaching the age of 65 or 70, it's hard to take instructions from someone 20 years younger!
What will you do with your time? Start preparing today so you don't wander aimlessly when you retire. As my grandmother says, 'A man entering retirement without a hobby is a horrible waste.'
Retirement is the most emotional decision many agency owners ever make. It's more of a personal decision than a business decision. To maximize your agency's value, enhance its future, and ease the transition, begin planning your agency's perpetuation at least five years before you want to retire. This doesn't mean that you simply start thinking about a plan five years before retirement. It means that you actively begin preparing for your retirement. Planning and making commitments about such an emotional decision is difficult. Agency owners sometimes say, 'I don't want to make commitments five years out because I may change my mind and I don't want to limit my options!'
With an open mind, a little work, and perhaps some outside assistance, you can develop a perpetuation plan that doesn't limit your options. Planning your retirement can increase you agency's value or at least keep it from losing value, ease the transition, maintain your options, and make your decision much simpler when the day for retirement arrives.