The Basics of Exiting an Independent Insurance Agency

By Tony Caldwell

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Determine your exit strategy.

As an independent agency owner, you may be planning to sell your agency someday. However far in the future, that day may be, you should start planning your strategy now. According to the Exit Planning Institute, as little as 50% of small business owners in the US have an exit plan in place, and most of those have not even documented their plan. 

Whether you plan to leave your business to someone, sell it, or merge into a larger company, you need to start taking stock and making plans at least 2-3 years ahead.

Valuation & opportunities.

Many business owners overestimate what potential buyers are willing to pay for their agency. The insurance industry usually considers several factors to determine the value of an agency: earnings (current and through time), a risk to future earnings, and market conditions.

A good book of business is not enough to get a good valuation if your finances are not organized or your staff is too reliant on you. 

Leave a legacy.

Deciding to sell your insurance agency is a major life step. After so many years of hard work, it’s unlikely you will be satisfied staying at home or fishing every day. Consider engaging a life coach to plan your next steps, whether it be retirement, moving into a whole new business, or staying in the insurance industry as mentor and advisor.

1. Calculating EBITDA

Get a good CPA to help you calculate your agency’s EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) if you don’t know it already. It is a great indicator of the state of your business and will help you set a realistic value for your agency.

2. Determine your agency’s valuation.

In the past, decisions to sell or buy agencies were based on the commissions that the agency brought in. However, the current valuation method is much more accurate, since it also takes into account expenses by focusing on actual profits instead of just income.

Setting a realistic price will make your sales efforts more effective and help you complete your sale faster. Don’t cling to fantastic notions of the value of your company, and stick to the numbers.

3. Determine your tax implications.

With a good CPA and tax expert, and a solid plan, you can enjoy tax benefits when selling your insurance agency. In order to make the most of them, you need to start planning and laying the groundwork a few years before the sale actually takes place, so start now.

4. Finding a buyer.

We believe that the way in which you built your business will attract a specific type of buyer. Learn more about our philosophy and how you can leverage it to increase your chances of selling for a good price.

5. Leaving a legacy.

It took a lot of blood, sweat, and tears to found and grow your agency. Make sure it survives and thrives without you by making sure processes and finances are in order, your staff is well trained and empowered, and the next generation of managers will make the right decisions.

Download the free "How to Exit an Independent Insurance Agency" guide from OAA.

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Questions? We have answers.

Deciding to sell your insurance agency is a big step. What would you like to learn more about?

I have questions concerning insurance agency valuation.

There are several factors at play when it comes to agency valuation. Our team is standing by to answer any questions you might have.

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How do I complete a partial exit and reap dividends successfully?

Regardless of who you sell to, consider getting professional assistance to help you value the agency. You’re a professional agent, not a professional mergers and acquisitions person. This is likely your biggest asset and you’ll probably only do this once.

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How do I find the right buyer for my agency?

The logistics of who will take over your agency can be built in to your exit strategy. For example:

  • If you have a partner or partners, have a buy/sell agreement from the beginning that specifies how one, or more of you, can leave. It also should create a formula for valuing the business. This way there are no arguments about the price when the time comes.
  • If you plan to sell to a family member or employee, remember that they’re entitled to nothing.

Potential Additional consideration can be given to an interested party who is prepared and ready to buy.

How do I prepare my staff for a transition?

Employees who are on board with the vision you’ve articulated should have a clear understanding of what’s at stake for everyone, including themselves. While it's important to make this vision clear from the start, we can also help with transition logistics  when the time to sell arrives.

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What is this EBITDA everyone is talking about?

EBITDA is an acronym. It stands for earnings before interest, taxes, depreciation, and amortization, and it can give the truest picture of any business's profitability.

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Is your exit strategy ready?

You've invested so much into your insurance agency. We can help you determine your next steps when you make the decision to sell.

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