So you’re thinking about selling your insurance agency — that's fantastic! The fact that you've reached this decision tells me you've put your heart and soul into building a business that's worth something. You want to get this right.
Selling your agency is the main event that will enable you to see a return on the fruits of your labor while relieving you of the responsibility that comes with owning a business. Sounds good, right? We get it.
There are a million reasons why you might want to sell your business — and we’ll talk about more of them in just a minute — but for now, let’s take a step back and consider some of the many factors that come into play when you sell an insurance agency.
First of all, it’s essential to make sure you truly want to sell your business. People choose to sell their businesses for a variety of reasons. Perhaps you want to spend more time on the golf course. Going fishing with your grandchildren or spending more quality time with your spouse. Whatever the reason it’s essential to get clear on your motivation for selling the agency — you don’t want to make a decision you regret down the road!
If you’re determined to sell, be prepared to wait a period of time before the final signatures are in ink. It’s just a fact — insurance agency sales may take some time. It’s a process, but we promise it’s worth it to know that your sale is successful and the business you’ve built is in good hands!
The second most important factor to consider when you’re considering the sale of your insurance business is the actual value of your book of business. We’ll go into more detail later, but for now, here’s the most important thing to know: Yes, it’s not always easy to accurately estimate the true value of your business and get a good deal, but Sunbelt Atlanta can help! We are all about making business sales smooth and simple — we’ve even created a convenient online tool you can use to get started on the estimate of the value of your insurance business!
Once we've established a value for your book of business, we can strategize our plans for getting your business to market, finding the right buyer and settling on a fair price.
Sure, there are plenty of factors to consider when selling an insurance agency — but that doesn’t mean the process has to be overly difficult or complex. At Sunbelt Atlanta, we’re dedicated to making the transition of your insurance business as seamless as possible and for maximum value so that you can enjoy the rewards you’ve earned. We’re excited about partnering with you on the sale of your business — that’s why we’ve written this article!
Today, we’re walking you through all the details of selling your insurance business. We want to help you get the maximum returns on your insurance business sale, and we want you to have the confidence as you take this big step. Are you ready to get started? Then read on!
So You Think You Want to Sell Your Insurance Agency?
Selling an insurance business is a big decision! You spend years investing your time and energy into this enterprise, and you’ve put a lot of passion into it as well — you don’t want to sell it too quickly and quite possibly leave money on the table! That said, there are plenty of reasons why selling might be the right choice for you. Here are just a few:
- You’re ready to retire. You’ve pounded that pavement, kept your nose to the grindstone, and worked hard for every penny you’ve earned — congratulations! Now it’s time to take a step back and enjoy the rewards of everything you’ve created. If you’re ready to step back from your business and enjoy retired life but you want to give yourself a little time to adjust, selling your business is a great choice.
- Your passion and fire are gone. You’re showing up to work day in and day out, but something doesn’t feel right — that hunger you used to have just isn’t there anymore. Maybe you’ve developed a new interest, started a side hustle that is more exciting to you, or you just don’t get the same buzz you used to. Whatever the reason, your passion for this particular business is gone, and you no longer have that drive to keep growing the business. If that’s you — it’s time to sell!
- You realize a new owner will better serve the business. Maybe you’ve realized that your peers and employees have fresh, new ideas that will benefit the agency. Or perhaps that employee or family member you’ve been training is ready to take over the business and raise it to new heights. If you recognize that it’s someone else’s turn to step up and take the lead, selling is a great idea.
- You no longer have the resources to level-up your company. You’ve built a fantastic business, but you’ve reached a ceiling — you no longer have the financial capital to invest, but you still want to take your business to the next level. In that case, it’s time to sell to a larger company with the resources, technology, and management structure to take what you’ve built and make it even bigger.
- You don’t want to compromise your mental health. Your health comes first — no matter what. If the stress and strain of owning and running a business are weighing heavily on your mind, it might be the right time to sell. That doesn’t mean you have to step away entirely. You can still stay as involved as you desire — but someone else can shoulder the financial responsibility.
The truth is, there are a million reasons why you might want to sell your company, but it’s important to get crystal clear on what your reason is. Selling a business is a big decision, and you don’t want to regret it. Remember — once you’ve sold your business, you can’t get it back. Make sure that selling is truly what you want to do, and then proceed with confidence.
What Is Your Business Worth?
Once you’re totally clear on your motivation for selling your business, it’s time to get to work securing that sale! There are plenty of things to consider — starting with the value of your business.
But the total value of your business isn’t necessarily easy to calculate. There are a number of factors to consider, including but not limited to:
- Your total earnings. When we talk about the total earnings of your business, there are two key numbers to look for: your annualized gross commission and your EBITDA.
The annualized gross commission is exactly what it sounds like: The amount of money your business makes in a year. Most businesses sell for about 1.5 - 2.5x their annualized gross commission. So, for example, if your business generates $100,000 per year in net profits, a fair selling price could be anywhere from $150,000 to 250,000.
Keep in mind, however, that annualized gross commission is not all about the money your business owns. Assets and products that produce more income are going to be worth more than those that don’t, so businesses capable of growing their assets will be worth more.
But it’s not quite that simple. As a business owner, you know all too well that you’ve got to spend money to make money. That’s why it’s important to calculate your adjusted EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. To calculate those earnings, you’re going to want to add up all your profits and assets. Then, subtract loans, depreciation, and other expenses. And finally, adjust for the costs of your employee’s salaries and benefits, any rent you must pay, and the cost of hiring someone to replace you.
Once you’ve added up your assets and subtracted all debts, you’ll have a pretty good picture of your total earnings. From there, you can start to gain a clear picture of the value of your business. Keep in mind — most businesses sell for 4x - 5x the adjusted EBITDA.
Remember, too, that money — while important — is not the only indicator of the strength and value of your business. Potential buyers will want to see your clients’ reports, your average policies and policy premiums per household, your largest clients, and many more factors to determine the true worth of your business. Good reviews from impressive clients speak volumes about the strength and growth potential of your insurance agency.
- The risk involved for the buyer. Sales always come with a certain amount of risk, so your buyer will want to take care that they’re not going to lose money in the long run. There are many warning signs of a high-risk sale; however, it’s not just about whether your company is losing money.
For example, employees or poor record-keeping are major red flags for potential buyers. If your buyer notices that your company has shown a pattern of high employee turnover, they’re going to scrutinize potential deep-rooted problems within your agency. Or, if they notice that your company’s books aren’t exactly well-organized and up-to-date, they might wonder about financial issues, waste, and irresponsibility on your part as the manager. Other risk factors include revenue concentrated only on a few carriers or accounts. Or an over reliance on carriers that are non-rated and/or serving substandard markets. These are things potential buyers will scrutinize.
That’s not to say your business must be pristine to achieve a sale. Every wise buyer understands that there is some risk involved in any kind of acquisition of this size, but when seeking to sell your agency, it’s important to put your best foot forward and present your company in the most appealing light possible.
- Your financing plan. When it comes to the buying and selling of businesses, it’s always best to encourage your buyer to use third-party financing. And the truth is, financing a large acquisition through a third party really does benefit both buyer and seller.
By using a third party to finance the purchase of your business, your buyer has the certainty of receiving a high enough loan to acquire the business and out-bid other competitors. Meanwhile, you’re much more likely to sell your business for what it’s worth instead of accepting a lower price or a larger note. Your buyer won’t be seeking difficult-to-find lines of credit — instead, you’ll reap the rewards of your labor on-time and in the highest amount, and the financial responsibility will pass to your company’s new owner. Truly a win-win!
Calculating the total value of your business is hard work. There are so many factors to consider, and it’s easy to feel overwhelmed as you attempt to find a reasonable asking price for your insurance agency. We’ve been there!
We have good news, though: Sunbelt Atlanta is here to help. We understand how important it is to accurately assess the value of your business and get the most out of your sale. We’ve brokered the sales of many insurance businesses during our 20+ years as a firm, and we pride ourselves on providing expert advice earned over more than 70 collective years of experience. We’d love to add you to our list of highly satisfied clients!
To help you through the process of estimating the total value of your business, we’ve even created a handy online tool that you can access right here. This provides you with a quick and easy way to value your business online. It doesn’t have to be painful. Evaluating the total worth of your business starts with just a few clicks!
How Do You Want to Be Paid?
Once you’ve discovered a fair sale price for your business, it’s time to decide how you want to be paid. As usual, there are multiple options — three, to be exact — and several factors to consider. Let’s look at the three methods of payment you can choose:
- The “Lump Sum” Method: Plain and simple, this is the most straightforward way to bring home the amount of money your business is worth. Your buyer will take out a loan for the full purchase price of your business and cut you a check! It’s as simple as that.
The simplicity of this option is the beauty of it — you receive your money all at once, the deal is closed, and you can move on. If you’re looking for an easy, one-time payment, this option is for you.
However, it’s important to keep in mind that this is the riskiest option for your buyer. After all, if anything goes wrong and the acquisition doesn’t produce the projected growth, your buyer has lost a lot of money. As a result, buyers are more likely to offer the lowest amount of money possible, and you could end up paying for the simplicity of the deal.
- The “Over Time” Method: This next method is still incredibly simple and straightforward, but it takes some of the pressure off the buyer to secure a high-enough loan upfront. With the over-time method, your buyer will pay you an agreed-upon percentage of the total value of the sale upfront and then give you a note for the rest. Then, you can either continue to receive regular payments on the note, or you can sell it to a company that specializes in note purchases.
Keep in mind — this method of sale still carries a significant risk for your buyer. Even though they’re no longer expected to pay the full amount of the sale upfront, they’re still committing to a specific dollar amount to be paid over time. That means that they’re still not going to offer you the absolute highest valuation you could possibly ask for.
However, there are significant advantages to this method. For one, your money is guaranteed — you and your buyer will still sign a contract agreeing to the amount of money to be paid. After that, you even have the option of selling the note to a note-purchasing company, further securing your profits. Additionally, because your buyer does not need to seek such a high upfront loan, they’re more likely to offer a higher valuation for your company, and over time you’ll make more money than you would from the lump-sum method.
- The “Earn-Out” Method. The final method of selling your insurance agency or business carries the highest risk for you, but it also offers the highest rewards. Your buyer will pay you 60-80% of the value of your business upfront, and the remaining 20-40% will be paid out over time as your agency grows and produces net profits for the owning agency.
The earn-out method is often used to resolve discrepancies between the buyer’s and seller’s evaluations of the company. By making the ultimate price of the sale contingent upon your company’s ability to add to the profitability of the new owning company, your buyer absolves themself of financial responsibility if their acquisition proves to be less profitable than projected.
However, because the buyer has an added layer of security, they’re more likely to offer a higher price for your business should the acquisition become profitable. You take on more risk — you’ll need to ensure your buyer is trustworthy — but you have the opportunity to earn the highest possible valuation in the long-run.
All three of these methods are effective ways to earn a reasonable profit from the sale of your business. At the end of the day, it comes down to the amount of risk you want to take: Do you want to receive a lump sum upfront and walk away secure? Or would you rather take on a little extra risk for the possibility of earning more money in the long-run? The choice is up to you! And either way, Sunbelt Atlanta is here to help.
Who Is Your Buyer?
You’ve calculated the total value of your agency, and you’ve decided how you want to be paid — now it’s time to find a buyer and close the deal.
Who do you want to buy your business? Are you planning to pass it on to a friend or family member? Is one of your employees ready to take on ownership of the company? Great! Even if your potential buyer doesn’t have the cash or credit necessary to purchase the company outright, there are newer forms of financing that can allow you to sell your company to your trusted successor in a way that works for everyone.
And if you’re looking to sell your agency to a larger company, a good sales broker can help generate interest for you. Business brokers can reach out to contacts in your industry and help you market your agency as a potentially profitable acquisition for larger companies. Then, you’ll be able to take a look at the competition and accept the most favorable sales offer for you.
When it comes to choosing the right buyer, remember — it’s important to do your due diligence. Even if you have a personal relationship with your hopeful successor business owner, it’s important to ensure that you’re putting your company in good hands. Ensure that your buyer’s goals and intentions for the company are in alignment with your vision, even if they’re looking to make some fresh changes. Also, make sure that they have the financial stability and management ability in place to successfully maintain and grow the company to new heights.
Your legacy is important — that’s why it’s essential to find a buyer who will honor and continue that legacy. Don’t be afraid to discontinue conversations with a potential buyer if you lose confidence in their ability to take good care of the company you’ve built — you don’t want to have any regrets. But if you find the right buyer for you, you can make the sale and walk away proud — you reaped your rewards, and your hard work will be taken care of.
Ready to Get Started?
You’ve worked hard, and you’ve built an insurance agency you can be proud of. But if it’s time to move on — whether to retirement, a new career, or something else entirely — you owe it to yourself to secure the best deal and bring home the full reward of all the hard work you’ve put in.
We at Sunbelt Atlanta want to ensure your confidence and security through every step of the process. The decision to sell your insurance agency is a big one, but the process doesn’t have to be painful. Remember that we’re ready and happy to partner with you every step of the way — from evaluating the value of your business to signing the final paperwork, Sunbelt Atlanta is the right choice to help you sell your business.
Are you ready to sell your insurance agency? Personal Services Business Brokers at Sunbelt Atlanta are ready to help! We look forward to working with you!