What to Consider when Purchasing an Insurance Agency
When purchasing an insurance agency, it is important to do your due diligence in order to protect your potential investment in the insurance agency.
Agencies4SaleListings.com has several high quality listings of insurance agencies for sale. With all the listings available, and new ones being added regularly, you are sure to find an insurance agency that is the right fit for you whether you are looking to purchase your first insurance agency or looking for merger and acquisition opportunities. Once you find that agency, the true research begins.
This list is not a complete list of points of research but will provide you a starting point of considerations when purchasing an insurance agency.
Cash Flow Analysis: Review records of new policies, commissions, cross sells, renewals, annuities and other areas of revenue coming into the agency. Reoccurring expenses can include rent, utilities, employee costs, committed advertising expenses that could be in affect for an additional year, toll free numbers, etc. Review what expenses you could alter, if needed, and how the new ownership of the agency could change the revenue stream. A 12 month cash flow should be preformed at a minimum. If the agency is an established agency, a more thorough analysis should be performed to cover multiple years.
Financing: How will you be financing the purchase of the insurance agency? There are several options to consider including seller financing, self-financing through current assets and lending options that are available through several companies that specialize in lending to the insurance industry.
Location: How long is the current lease on the location? Is the location in a high traffic area with good signage opportunities? Location can play an important factor in the success of an agency. If you have to relocate the agency, it can cause you to lose current customers and affect your retention rates. If the lease is set to expire in the near future, you will also need to get with the landlord to make sure that the location’s monthly cost is not going to be dramatically increased during the next lease negotiations.
Advertising: If the current agency has yellow page or billboard advertising that is often in affect for a set period of time, you will need to factor in those costs as you will most likely be acquiring the remainder of those expenses. Any phone numbers, websites or emails that are advertised will be an asset to consider with the purchase. Make sure that those numbers or contact methods are available to be kept with the agency. Some websites or toll free number platforms can be expensive to update with the new owner’s information or to redirect to a website or phone system you may already have in place so you will need to factor in those costs when analyzing the benefits of existing marketing.
Company Access: Who are the current insurance companies that the seller writes with and do you already have an appointment with them? If not, you will need to check the underwriting requirements for the companies to make sure you can get appointed with the companies after the sale of the insurance agency. If you are not able to get appointed with all the current companies, you will have to rewrite the current customers under a different insurance carrier and could potentially lose those customers. If you have appointments for insurance companies that the agency does not currently offer, factor in how those carriers will compliment the insurance carrier mix.
Management System: What management system does the agency utilize and how are the customer records maintained? Will the management system stay in tact with the purchase of the agency? Will the records of the insured’s be compatible with a different management system that you may utilize and prefer to the one the seller utilizes? There are software applications available to assist in the transfer of records for compatibility between management systems.
Seller Assistance: Is the seller available to train the new owner and to transfer the business over a short period of time? Some sellers are willing to help make the transition as smooth as possible for their current customers and employees by staying on for a set amount of time, typically less than six months. The seller can also assist in making the transition a positive event for employees and customers by providing joint communications in conjunction with the buyer to educate the public of the new agency owner.
Can you please tell who I can contact to find out how to get financing for a new purchase of an agency?
Thanks,
D.Smith
D. Smith – Thanks for submitting your question.
There are several companies out there that offer insurance agency buyer financing. With the current economic climate and recent industry events, the lending guidelines have been shifting lately.
We recommend starting by searching the Internet for companies that specialize in lending for insurance agency purchases. It will give you a good starting point of several different companies to contact to learn more about their services, fees, etc.
Let’s open this question up to our readers…Can anyone share a finance company recommendation with D. Smith that you may have used or that you have heard good things about?
Don’t rule out your community bank. If you can educate them about the cash flow of the business you are buying, they might be willing to help. Other things that might help- Is the current owner willing to stay on during the transition, is the current owner willing to hold a note subordinated to the bank? Ask your banker to consider SBA guaranteed financing. Also, if you are not willing to pledge your personal assets, then don’t bother going to the bank.