What To Do When An Owner Retires

Retirement should never be a spur-of-the-moment decision, even if the temptation is frequent when carriers, customers, or employees push an owner’s “buttons” once too often. Al diamond warns that owners should never yield to the temptation and just throw in the towel.

Whether an owner is the sole proprietor and agent or the president of a multi-location insurance corporation, a retirement is a life-changing occurrence both for the retiree and for the business. If the retirement isn’t planned and prepared for, both the retiree and the business could find themselves in critical positions, floundering to achieve a balance from which each can continue their respective life cycle.

Retirement should never be a spur-of-the-moment decision, even if the temptation is frequent when carriers, customers, or employees push an owner’s “buttons” once too often. Never,never, never yield to the temptation and just throw in the towel! This doesn’t mean that you’re not ready for retirement; it means that in the “heat of battle” you’re never actually prepared for retirement.

A successful prepared retirement, whether it involves selling a business to an outside party or internally perpetuating it, will always yield better results to the retiree, the new (or remaining) owners, the agency, and its clients.

1. Plan for perpetuation. Otherwise your perpetuation plan simply becomes the sale of the agency. If you’re a partner in a firm and don’t plan for perpetuation, you’re at the mercy of the remaining owners. In this case, the Plan is a Buy-Sell Agreement or a Stockholders’ Agreement that includes provisions for establishing a price and other provisions for the terms of any retirement stock buy-back.
2. Make sure that you aren’t indispensable. Very few agents are so skilled (or have employees so unskilled) that others couldn’t assume their duties. I know of no agencies that fell apart when owners went on vacation, regardless of its duration. However, some agents make themselves indispensable by not telling others what they do (in general or for specific clients). For example, if a client calls with some question about their coverage, no one understands the management of the account except the key producer/owner, requiring a call to that person, wherever they are. Don’t put yourself in this position.
3. Pick your successors. This might involve an internal perpetuation plan or a decision to sell to someone outside the agency. In most cases, it’s best to tell your successor and prepare them, as well. Whether you have a date in mind (i.e., in two years, when I turn 65, or when we achieve $X revenue) or are creating a Succession Plan (i.e., if something happens to me, I want you to own the agency.), talking it over with you chosen successor will let you know if your Plan coincides with that of the successor. I know of two agencies that recently experienced a sudden change in their perpetuation plan. In one case, the chosen successor decided that the agency was going in the wrong direction and he couldn’t wait to assume control until the agency owner retired. He left, rather than waiting. In the other case, the agency owner presumed that his chosen successor knew his intention. Being a poor communicator, he never expressed his expectation and was surprised when the young man took another opportunity.

AS RETIREMENT APPROACHES

To achieve a strong value for your business, keep investing in the future and promoting growth as you approach your retirement.

The value of an agency is determined by its future earnings potential; this potential depends (at least partly) on its recent historical growth and profit path. If the new owner is already a part of the agency, the historical growth and profit is quite important, since they will probably continue the agency’s operation. Even if the new owner is another agency, it will base its value potential on the growth and profit recently achieved more than on its “hope” for enhanced growth and profit once it assumes control. If the new owner simply buys the book of business and manages it in their own operation, the selling agent’s operations become less important; however, the size and profit of his book of business remains a key factor in its potential value.

This means that one of the keys to financial success in retirement is not to stop growing the agency as your retirement nears. Sometimes this is very difficult since an owner’s first indication that retirement should be considered is often a growing feeling of boredom and indifference to the agency. If you feel yourself falling into this trap, consider giving some of the decision-making authority and responsibility to your successors before your actual retirement date.

Planning for retirement by off-loading operational responsibilities permits the agency to feel the impact of the new owners before they actually take control. In many ways, it’s a test to determine if they’re ready for management responsibilities. The retiring owner is still there to provide guidance and leadership, but must slowly step out of the way to let the new owners control the future of the agency.

This is a very delicate process. The old owners are almost always “controller” personalities who want the agency managed in the way that’s most comfortable for them. If the new owners want to take the agency in a different direction, they must understand the difference between their assumption of leadership and management and their assumption of ownership. Management authority is given. Leadership is earned. Ownership is paid for.

The retiring owner should gradually yield management responsibilities to the new owners. If the retiring owner follows this process, any time a management decision is to be made, they will yield the decision to the new owners (with some input, if requested).

The new owners earn leadership by depending on how they manage the agency while the retiring owner is still in place. Asking questions and considering the retiring owner’s opinion is a sign of strength. The retiring owner assumes the position of counselor while still owning the agency. Employees, companies, and customers realize that the new and old owners are in partnership through the transition. This is a healthy approach. When the retirement date finally arrives, the transition is natural and the only change that takes place at that time is the ownership of stock. Unfortunately, some management, leadership, and ownership transitions are made poorly by either the retiring owner or incoming owners, inevitably leading to stress, anxiety and crisis.

1. The owner can’t or won’t give up control. The ego drive of owners is legendary. Some owners find it difficult to yield control of their agencies to others, even if they understand the logic of management succession. If control is held until the ownership change takes place, the new owner will have potential crises arise quickly as employees, clients, and carriers test the owner’s resolve and decision-making skills. This has been done thousands of times as businesses transition, but can be avoided with transitional management sharing before ownership changes.
2. The owner gives up those management functions that they don’t like anyway but remains the decision-maker and arbiter of any problems. In this scenario, the new owner is never given the chance to show their leadership skills until after the ownership changes. Neither the new owner nor the old owner can be convinced that the decisions of the new owner are sound if they’re not given the chance to make any while the retiring owner is still in place.
3. Changes to the organization are not made gradually through a transition process. Young or new owners have a tendency to change many things quickly after the ownership changes. This “change everything syndrome” causes uncertainty in the organization; many changes made at once are less likely to succeed than changes made slowly, one-at-a-time.
4. Retiring owners try to “rule from the grave.” This term has been applied literally to owners who, upon their deaths, leave detailed instructions and conditions to the transition of their agencies. When an owner retires they can’t presume to assure continued employment for their staff, continued relationships with their carriers, or even guarantee that customers are treated the same way. These are the prerogatives of the new owners. If the retiring owner has chosen wisely, the new owners will care for employees, clients, and carrier relationships as well as the old owner – but probably differently. However, some changes are natural when ownership and management changes occur; personnel might change, clients who were close to the retiring owner, but not to the agency, might leave, and carrier relationships will shift based on the personality of the new owner. These changes are natural and should be expected.

CONCLUSION

The key to a successful retirement is to prepare yourself, your organization, and your successor so well that the transition becomes anti-climactic. If this occurs, no transition crises will occur and the organization will continue on its created course.