Posted 213 days ago ago by Carissa Newton 0 Comments
In developing a written succession plan for your insurance agency, you will need to seriously ask and answer key questions: How you’ll transfer control and assets? Who the owner(s) will be? How you’ll determine a fair value?
Planning for succession means that you’ll be able to think through all of the aspects carefully. It also reduces the risk that you’ll be backed into a corner by external events. A gradual transition will protect the health of the business and reduce everyone’s stress.
Who will succeed you? A succession plan gives you some say in determining your successor, along with time to prepare that person for the eventual transition. No two agencies are exactly the same. That’s why it’s important to take the time to envision the future you want for your agency. Children may have plans of their own, or their personalities may not be well-suited to running an agency. Employees may appreciate the opportunity to become owners. If your business is already a partnership, one of your partners may be interested in acquiring your share. Or, you may find a complete stranger who wants to buy you out.
Assemble your expert team. Successful businesspeople know how to tap into knowledge and advice from a variety of experts. Build a team you trust, including your CPA and attorney, and keep them involved. They will provide additional viewpoints and identify issues you may not have considered.
Create a transition strategy. Assess your agency’s strengths and weaknesses. Look for ways to enhance what you already do well, and develop strategies for resolving other issues. Develop a clear understanding of your agency’s fair market value. Today, average small agencies sell for four to five times their adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Structure the transition. Before you negotiate a price and terms, work with your attorney and CPA to identify and develop the structure that best fits your objectives and tax situation. Three common approaches are leveraged buyouts, earn-outs, and seller-assisted transactions. If you can help the buyer access third-party financing, you stand a better chance of receiving more for your agency.
Once the papers have been signed, the transition between owners is full of make-or-break moments involving carriers, customers, and employees. Employees want to know that they’re not facing significant changes. Clients want to continue to receive great service. Before you know it, your former agency may be a well-running machine that doesn’t need much of your time or advice. That means you did a great job of planning, your plan succeeded, and you can now focus on your dreams.