Perpetuation (n.) : the continuation, without end

There is much talk among insurance agents these days about the aging population of insurance agents. What does that mean for the industry and what does that mean for you? It likely depends on what side of the equation you are on. If you are an aging agent, you may be thinking about retirement but not quite ready to let go. Or are you early in the game and eager to make your own way? Whether you are in the early or late stage in your career, the steps you take towards your future should be deliberate and well planned. 

Let’s start with the late stage agent. You’ve worked hard to create and sustain your agency, and you want to see it succeed beyond you, right? For many, it’s not just about how to get the most value from your agency to fuel your retirement. You also want to ensure that your customers and staff are well taken care of, especially if you will live in the same community when you retire. So how do you accomplish that? 

There are several ways to perpetuate your agency and they generally fit into four categories: family, staff, peer, or newcomer. If you have a son or daughter interested in the business, they can be great successors. In other cases, you may have loyal staff that would like to take over. If those aren’t options, there are likely peers in your community that have the same values as you and would be interested in an option to buy your agency. A final alternative is selling to a newcomer to the industry or a larger regional or national aggregator. The important part is to recognize that there are multiple potential successors, so don’t be narrow in your search. Identifying your objectives to your eventual retirement should be a key factor in determining which path may be right for you. If obtaining the highest valuation for your agency is your primary objective, then selling to your family or staff may not be the right choice as those instances usually result in the lowest valuations. If your primary objective is to have consistency for your customers, then transition to a family or staff member that’s been working for you awhile may be the best answers. 

If you are early in the game, identifying and working for a seasoned agent with similar values and work ethic can help achieve your objectives of becoming a successor. Let them know early on that you want to be a potential successor when they are ready to retire. Being eager to learn from someone with greater experience than you will help them build confidence in you. Having a qualified and compatible purchaser will help the retiring agent feel more comfortable about the transition. 

There are five keys to a successful perpetuation. 

Not your mirror image 

Although you should find a successor that shares your values and work ethic, remember that they won’t be you. You grew as a business owner, just like they will. The ever changing world of technology is having an impact on insurance agents daily, and your successor may be more technically savvy than you, so recognize that they may not do things the way you have and that change is not always bad. Also, having the old owner around for a while may ease the transition, but it also may hold the new owner back a bit, so make sure there is a clear exit plan including an orderly hand off of responsibilities. The essential message here is don’t loiter. 

Smooth customer transition 

Your customers want an easy transition that doesn’t impact them so clear communication is imperative. If your successor is in house already, then ensuring your customers know them will help smooth the transition. Having “meet and greets” with your staff for your customers are easy ways to introduce a successor well before you announce the transition. If your successor is not in house, those same “meet and greets” may be a great way to introduce the new owner. Seeing both of you together in the same room will be reassuring. 

Be realistic about the valuation 

You will probably want more than the agency may be worth. You’ve poured your life into it and that must be worth something, right? Although that perception of value is understandable, it doesn’t necessarily translate to quantifiable value. It’s important to ensure that your historical financial performance is strong as that is what both buyers and lenders that will likely finance the purchase will be looking at. And it’s not all about the bottom line. In addition to profit, your valuation will be based upon revenue size and growth, retention and loss rates, customer demographics, carrier appointments, etc. Where you fall on the spectrum for each of those will impact how much your successor is willing to pay and whether it’s financeable. Check out our article “How much can I borrow”.

Seek advice 

Engage your attorney, CPA and potential lenders early so that you understand the tax and legal considerations as you formulate your plan. It’s likely that you won’t want to finance the sale to your buyer on your own, so talking to lenders who understand your business is essential to understanding how the financing works and ensuring that your successor is financeable. 

Plan, plan, plan 

The definition of insure is to secure or protect someone against a possible contingency which is what you do every day. So, do the same for your business by ensuring that you have a backup plan that meets your objectives should your first alternative not work. Make sure you evaluate your plan over time as things change in your business. Remember it’s never too early to start planning.