Agency for Sale? First, Ask Yourself These 4 Questions

In 2017, insurance agency mergers & acquisitions hit an all-time high. And as large agencies and brokers continue to buy up smaller firms, the 2018 market remains strong.

The number of buyers continues to outweigh the number of sellers, creating attractive valuations and selling terms for owners who are looking to sell.

But owners need to consider what life looks like after the deal. Prior to engaging in any serious sale talks, insurance agency owners should ask themselves these four questions:

1) Why would I sell my agency? Just because someone is offering you a large payout for your agency doesn’t necessarily mean you have a great reason to sell it. Think about your selling options in both the short and long term.

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. Selling for greater access to markets and better technological tools is different than selling to cash out for retirement.

The most successful transitions tend to occur when an owner involves their spouse in the conversation. Most of the time, a spouse can act as a great sounding board and adviser. They take a more holistic view of the owner’s life and connect their personal life with their professional life to help determine if selling is truly the best option for the owner and their family.

2) 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. Imagine entering the final year of your earn-out and realizing you want to continue working, but don’t want to work for the agency you sold to.

Sometimes, owners need to take a cut in annual compensation when selling their agency. Usually, they can make up for the reduction in salary with the premium they receive in equity. But if an owner has a longer time horizon for retirement, they might be better off not selling, collecting a higher income, continuing to grow the business and selling it in the future for more money.

3) Can I work for someone else? The biggest adjustment agency owners have after selling their agency is realizing they are no longer the boss. The ‘independent in charge’ mentality is what led them to success, but it’s also what can lead to discontent after selling their life’s work to a large bureaucratic corporate structure.

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.

4) In an ideal world, what does my life look like 10 years from today? Look toward the future and consider where you’ll be living, what interests and hobbies you want to pursue, and what you want your typical day to look like 10 years from today. Are you retired? Are you still actively selling insurance?

Agency owners have constructed successful businesses that have provided a great lifestyle for themselves and their families. For some, the agency is such a big part of their identity that they can’t imagine life without it. Others have built enough wealth and interest outside selling insurance that their ideal world looks much different than the one they are living in today.

Define your ideal world, and then begin to execute toward that vision.

There has never been a better time to sell an agency. But selling for money alone may not provide the long-term happiness and fulfillment you seek.

Jim King, CPA, CFP®, is an owner and wealth manager at Balasa Dinverno Foltz LLC (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.

Important disclosures: Past performance may not be indicative of future results. BDF’s investment and wealth management strategy may not be profitable, suitable for you, prove successful or equal historical performance. BDF does not provide legal, tax, insurance, Social Security or accounting advice. BDF’s current written disclosure statement discussing advisory services and fees is available for review online or upon request.