Last Updated: January 9, 2023

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Planning Retirement Is Never Too Early For Independent Agents 

As an independent agent, coming up with a succession plan—ultimately a retirement plan—is one of the biggest decisions you will make.

Your agency, your book of business, doesn’t just represent years of work and dedication but also your identity. Your identity as a professional and as an agent is tied directly to your business. So, thinking about retirement may have you feeling like you don’t want to leave.

There are several agents reaching that retirement age, and it’s bringing about a generational shift. And a major decision before retiring is planning the future of the book of business and the agency they’ve spent years developing.

It is crucial to take the time to explore your options and devise a robust plan for succession planning and retirement.  

Things to Ask Yourself 

What are my options?

You have three options for your book once you decide to retire:

1. You can pass it on—to a child, a coworker, an associate, etc.
2. You can sell.
3. You can let the business run off.

Am I ready to retire?

The value of your book is a combination of your gross commissions and the state of your data. An unmanaged, clustered book of business will have a rapidly diminishing value. The buyer needs to be able to absorb your book quickly so they can start working ASAP.

We’re going to be looking at selling your agency as the succession plan.

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Going for a Clean Break 

There’s just something about a clean break. Selling your book of business is giving you just that. 

Selling isn’t a fast process by any means. And it can be an extremely difficult choice. There are agents who choose not to retire because they love their business too much and some don’t trust others to run their business.  

However, there are certain merits to selling your book of business and actually retiring.  

Things to Consider When Planning Your Exit 

The Value of Your Book of Business  

Since the pandemic, the valuation of insurance agencies has never been higher. There are quite a few that even go for 3x the revenue. In 2020, an insurance agency even went for 6x the revenue and 10-15x EBITDA. The reason for this was simple—low-interest rates.  

  • The Impact of Low-Interest Rates  

Low-interest rates make it more affordable for people to buy, while investors have a tougher time making an adequate return on investment (ROI). So, businesses like insurance agencies with a consistent cash flow have never been more valuable. This trend is sure to last a couple of years. 

It also creates high demand, but the supplies are lower than before. There’s only about a 4-year supply of investment-grade insurance agencies in the marketplace today. This also means that your agency has NEVER BEEN WORTH more than it is now. 

  • Post Pandemic Value 

The pandemic also brought newer risks for agencies, which affects the value of a book of business. The economic disruption resulted in a loss of clients and premiums. This downward trend may also persist until 2024. So, bear this in mind and do everything you can to maintain and grow your income, as it directly leads to a growth in value.  

  • Local vs. Remote Book of Business  

Your location will also play a hand in your final valuation—depending on who you’re selling to. 

Customers are used to their agent’s process. They will continue to expect it if they’re used to meeting agents at a local office. It’d be a much more difficult buy if you didn’t already have an office space or building. 

A buyer may pay less for that book of business because of the extra trouble they’d have to service that book. So, depending on whether you serve customers locally or long-distance, it may appeal to different buyers differently.  

So, pay attention to how your clients are trained and who you’re selling to—you might be able to get a larger deal if the buyer is local.  

Composition of Your Staff 

As owners get older, so do your long-term employees. This is the ideal time to make sure you have an adequate spread of age. Make sure to have a staff that has both experienced, veteran members as well as younger members to create a diverse environment. This will take time to prepare for but it adds to your value.

It’s good to do this and have 3-5 years before you finally decide to sell. You need to realize that this is a once-in-a-lifetime opportunity to cash in your nest egg. But also, be aware of overstaffing. Overstaffing means profit leaks that buyers will have to account for later down the road. Also try and reduce overpaying producers. Reduce your expenses to maximize your profitability and in turn, your value.

Insurance agency Value Calculator

Find Your Buyer

If you’re not passing your book to a family member, finding someone in the business to purchase or even handing it over to an employee can be a challenge.  

If it’s an employee, how do you help them prepare the money to buy the book? And do they have the experience to keep the business running as you do?  

If it’s a local insurance agent, identify them or keep your options open and make a list of potential buyers. Lastly, another category of potential buyers for your agency would either be a national broker or a PE (private equity) firm. PE firms are among the industry’s biggest buyers and those that pay the most money.  

There are also other things to take into consideration:  

  • Where are you physically located? 
  • Do agents handle clients remotely, or do they have to meet in person?  
  • Do you trust the interested party to take care of your clients?  
  • Will the clients trust that person/company?  
  • Is the interested buyer giving you a fair valuation? 

Transitioning from Agency Owner to Former Owner 

How long does the transition take?  

Keep in mind that several deals are structured with an earn-out. It means you don’t get all the money upfront; you earn some after the sale. This may mean that you have to stick around for a couple of years. This can be anywhere from 3-4 years or even 10. 

How far in advance should you start preparing?  

You could start as early as 10 years in advance. Imagine going on the market in three or four years. Once you get a buyer, it’ll usually take a year to finalize a deal. After that, you stick around for a couple more years and that’s a decade!  

Just know it’s never too early to get started planning.  

Your retirement may still be a fair way in the future, but it’s never too late to look ahead. Contact us and let’s have a chat. We can help you assess your agency’s value and craft a plan to increase it before it’s time to sell.

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