What Not to Do When Planning to Sell Your Agency

Fair warning to the reader; I’m going to be stating the obvious from time to time…but only because I continue to see what follows on a regular basis. These issues can aggravate the already difficult process of selling an insurance Agency.

There’s on old saying that goes like this; “Once you start to think about retiring, you’ve already retired”. Trust me, I know. The same pretty much holds true when you start “thinking about selling”. So, with that in mind, let’s get into some of the major pitfalls and challenges (certainly not all), that make selling more difficult than it has to be based on this type of mentality, (or complacency).

Manage Relationships with your Company. Like it or not, you do need your Company’s assistance and their approval of your buyer candidate (for captive agents) to get the sale done. Cooperate and stay on good terms and in good standing as much as possible.  Strained relationships and friction between you and the decision makers can create an unnecessary and difficult burden to selling. Be as transparent as possible regarding your intentions and timeline to sell. So in short, maintain open and honest communications with your Company once you’ve decided to sell to the greatest extent possible, contingent of course on your need and preference for confidentiality. 

Don’t reduce your staff in order to save on payroll expense. This is big. And, if possible, don’t tell your staff prematurely that you’re selling, because that uncertainty can cause them to consider leaving for “greener pastures” unnecessarily. There could be exceptions to this based on your particular situation and the relationship you have with your staff. That is of course something you will have to decide. But as a general rule, I would avoid informing them too early in order to circumvent the inconvenience of losing staff unexpectedly. Give them a chance to meet the new Owner/Buyer before letting them know if possible. At least this affords them the opportunity to form an opinion one way or the other which will make for a smoother transition.

Retaining your staff is critical. A fully staffed agency is much more important and necessary than you may realize. Most companies require minimum staffing requirements for a new agent/buyer. A potential buyer doesn’t want or need the burden of recruiting, hiring, and training support staff while navigating your Company’s approval process to buy your agency, while simultaneously completing the required education and training along with everything else they have on their plate; such as acquiring the required licensing, securing financing, and hiring an attorney in order to have the purchase agreement drafted. That’s a lot.  They don’t need the additional task of having to hire staff because you decided to save on payroll.  So, maintain or shore up your staff! Do not cut payroll to save on expenses prior to selling. You’ll make it up on the back side with a more attractive sale price and save yourself the hassle of having to assist your buyer with finding staff to meet your company’s requirements, which could slow down or even prevent the sale from going forward. I’ve seen it happen.  

Don’t scale down or reduce your Marketing Spend, and/or discontinue your marketing, prospecting and new business generating activities. Buyers are looking for a fully functioning, turnkey operation that’s basically “plug and play” on day one. If you want to sell “as is” and market your Agency as a “fixer upper”, that’s fine, just realize that is not what most buyers are looking for. That strategy will more than likely generate a discounted offer as opposed to fair market value or even a Premium sale price. So, consider yourself forewarned, or at least informed as to what to expect if that’s your plan. An Agency that has to be “ramped” back up into full production mode is not as desirable as a fully functioning Agency that is stable or better yet growing.

The Office Appearance should be clean, organized and professional. This one should be easy unless you have some major renovations that need to be done, like painting, carpet and updated furniture and equipment. A good first impression when seeing your Office for the first time whether in person or online will prevent any “cold feet” or buyer’s remorse, especially before a Sales Agreement has been signed. Again, I’m stating the obvious here. Neatness counts.

Don’t refuse to consider some form of Seller Financing. This one can be tricky. The Lending landscape has changed, and most Lenders want some “skin in the game” from the Seller depending on the financial bona fides of the buyer. Also consider that most buyers want to do away with the Seller Note as soon as possible by refinancing or simply paying it off early to make the Seller whole and to be free and clear of that secondary loan and its ancillary conditions and concerns. Accepting a Seller Note will also depend on the terms, and whether or not there is a ‘standby” provision imposed by the Lender. It depends on the financial institution as to whether or not this is negotiable, and the length of time the “standby” is in effect. It can range from two (2) to ten (10) years if applicable.  Also, consult with your accountant as there may be tax advantages to a Seller Note you may want to consider. 

Lastly, don’t let your emotions interfere with the negotiations. This is a difficult thing to do, but it can kill the deal if you fail to exercise some restraint, self-discipline and patience.  Understand the buyer doesn’t know what you know, because they haven’t been where you’ve been, unless of course they have prior industry experience. Expect a lot of questions you may consider to be “ignorant” and even irritating, and resist the impulse to “push back” or argue. Be courteous, patient, and most of all professional. I’ve learned a little patience, education and explanation can go a long way in creating understanding and a more conducive atmosphere and environment to viable, credible and productive conversations during the negotiations.  This holds true especially if the buyer doesn’t understand the difference between an Asset Sale and a Stock Sale. If they’re coming from a traditional business background, you will often get push back on the Valuation/Price (Multiple) as its used in our business versus a traditional EBITDA valued business. Which is why I strongly recommend using www.Acuvizori.com for your Agency Valuation. It provides the buyer and lender with a comprehensive and thorough presentation of your Agency’s financials, reports, P&L’s and historical performance. The importance of having a professional valuation to present to buyers and lenders cannot be overstated. I highly recommend you consider it. 

It’s always wise to seek professional guidance and advice when selling your agency, especially if you feel uncomfortable handling the process yourself. An accountant or consultant can provide valuable insights and expertise to ensure a smooth and successful sale. If you need assistance or have any questions, please don’t hesitate to let me know. I’m here to help.