1. Make a plan before you take action.
Before doing anything, make a plan that will allow you to sell your agency in the safest and most profitable way. The earlier you start planning for the sale, the better off you will be.
2. Shine up the agency and fix what’s broken.
One of the first things to do is to look at the agency through a buyer’s eyes. The more organized and professional your agency appears, the more valuable it will appear to be to the buyer. For example, are your client records complete and organized? Do you have professional looking complete financial statements? Are the financial and accounting records clean of any unnecessary items that may detract from the real value of your agency such as owner automobile lease payments, etc. Have your employees and producers executed confidentiality, non-solicitation, non-disclosure and/or non-compete agreements? Are your producer appointment contracts with your insurance carriers in order? Do you have reports from your carriers such as loss runs, commission statements, etc.
3. There’s more than one fish in the sea. Don’t solicit just one buyer.
You might have a buyer in mind that you would like to sell your agency to but there is no guarantee that there will be a match between what you want and what that buyer may be looking for. By concentrating on just one buyer you may have wasted valuable time if it doesn’t work out. In addition, you lose the benefit of having multiple buyers compete with one another to purchase your agency. Once your agency is ready to sell, make up a list of potential buyers to contact and consider anonymously listing your agency in publications such as The Standard.
4. Don’t let potential buyers get your business without paying. Protect your assets with a preliminary agreement.
Showing potential buyers your expiration lists and sharing information about key clients and business strategies without a preliminary confidentiality and noncompetition agreement puts your valuable assets at risk. Make sure all potential buyers sign such an agreement before you share anything. This especially holds true if you are entertaining offers from competing agencies in your neighborhood who may already be attempting to solicit your clients.
5. Don’t’ introduce potential buyers to your employees. Be discreet.
Under certain circumstances, it may be wise to keep your intent to sell the agency as confidential as possible. It may take months to find the right buyer and complete a deal. In the meantime, you do not want to upset the ranks. For example, there may be employees that believed that they one day might have owned the agency that will get rankled knowing you are not planning on selling to them. You may have a producer that was thinking of leaving for another agency and this may convince him to leave sooner rather than later. In order to avoid these issues, plan your meetings with potential buyers off-site or after hours. The confidentiality agreement that you require potential buyers to sign will help to maintain it. When you feel the time is right, let your staff in on the plan. If you know the buyer may wish to keep some of the staff, you can let them know that too.
6. Don’t rely on the buyer’s “valuation experts”, get your own.
Buyers may hire an expert to value your agency. Don’t take what that expert says for granted. Get your own expert or at least question the premises that the buyer’s expert has used to value the agency. There may be factors that impact the value of your agency that the buyer’s expert has not taken into account. For example, you may know that several former exclusive representative producers in your area have not received voluntary appointments and this may increase the business at your agency over the next several years. The price might be based on more sophisticated factors than just a multiple of commissions.
7. Don’t agree to a price until you have agreed on other critical terms.
There are many factors that will affect the actual value that you will receive. For example, will the buyer be paying cash up front or over ten years? Don’t commit to a price before negotiating other terms that will affect the monetary value of the agency or you will lose your negotiating edge.
8. Is the buyer worthy?
The buyer wants lots of information about your business but you will want information about him or her as well. Does the buyer have a loan commitment from a financial institution? If the buyer is paying over time, is he creditworthy? If the buyer fails to pay, will want protections in your agreement such as the right to demand that the buyer sell pay off the sales price in full before selling the agency or that the expirations will be the security interest for the note and other protections.
9. Other agreements – get it all in writing.
The parties may agree to more than just the terms of the purchase and sale. For example, the buyer may wish to employ you to help run the agency for a period of time. As with the purchase and sale agreement itself, agreements such as these need to be in writing and need to carefully specify all of the details of the agreement. Don’t rely on the buyer’s oral statements that you will not really need to come in but only be available to answer questions. If that’s the case, make sure the agreement says so.
10. Get a lawyer right from the start.
Don’t rely on the buyer’s legal counsel. You want to have your own and bring them in at the beginning of the process so that they can protect you right from the start. You have sold thousands of insurance policies, but how many times have you sold an agency? A lawyer with experience in purchase and sale transactions and knowledgeable about your industry will likely save you money and heartache in the long run.