Questions to Ask Your Seller

When beginning the process of acquiring another insurance agency, there are a myriad of topics and ideas that will be discussed between both parties. At First Mid Bank & Trust Agency Finance, our team is well versed in the questions that arise from a potential buyer. Following are common questions you should ask of the seller.

Financial Performance

One of your first inquiries for the seller should be related to the agency’s financial performance. It’s best to obtain three years of financial statements, preferable in the form of tax returns. If the agency is reported through the seller’s personal tax return, then ask for their Schedule C and related schedules. Focus on the trend line for revenue. If it’s increasing, ask the seller what has contributed to the growth to ensure that it will be sustainable once you take over. If the revenue trend is declining, determine what the cause of the decline is. Is it due to an inactive owner who has “checked out”, or local market conditions, or ineffective staff and retention. You’ll want to have a handle on the trend to ensure that you can either sustain it or be able to take corrective action to reverse any negative trend. Additionally, review with the agency’s seller if there is any revenue or bonuses that may not transfer to you as buyer.

You will want to review the expenses in detail to determine what expenses may be incurred by the seller but that you may not incur post acquisition. Agency owners may have excess personal business expenses running through the agency that you may not have. Also identify if there are any one time expenses that won’t recur each year. Inquire about the office location lease arrangements to get a handle on the monthly rent. Get a good understanding of the insurance benefits provided to employees and the related costs. You may be able to identify these expenses by closely analyzing the line items of the seller’s financial statements but make sure you understand the contractual arrangement for each expense item, if any.

Quality of the Book

As a buyer, it is essential that you review the current state and quality of the agency book. Discuss and review the agency’s current retention rates and loss ratios. What are their procedures for customer retention and keeping loss rates low. Focus some of your discussion on the diversity of the customer and revenue base. Make sure you determine if there is any concentration risk to its current customer base especially in commercial property and casualty agencies. The easiest way to look at concentration risk is have the seller provide a list of their top 20 customers based upon annual premium or commission. With large customers, you will need to ensure that you can maintain those customers because you’ll be paying for the revenue they bring in your purchase price.

Which carriers and carrier relationships is the agency currently engaged in? An important piece of the carrier side is ensuring that each carrier will transfer the existing book to you as the new agent which will likely include you contracting with each carrier if you aren’t already. Most agent/carrier agreement’s state that you need to get the carrier’s consent before assigning or transferring the book, so you’ll want to have those discussions early on. In your discussions about the carriers, ask if there are any Errors and Omissions (E&O) claims currently pending and what their E&O history looks like? You’ll want to ensure that you don’t take on any liability for those items in your purchase agreement.

Agency Location

Depending on the agency location, if the seller does not own the building or property where the office is located, a lease agreement may currently be in place. Determine if you will be able to assume the lease and existing location. If there is a need to change the current location, review the current lease for costs you may incur if you break the lease.


Will you employ new talent or do you intend on keeping all or part of the current staff with the acquired agency? How will you make the determination to keep or let go of those employees? Review employee job responsibilities and performance with the seller. Inquire about any contractual agreements between the owner and employees? Discuss how and when employees will be notified of the sale and when you will have access to talk to them about the transition. Make sure you focus on retention of key employees that can impact the revenue or retention of customers.


Marketing for the newly acquired agency is an important item in gaining exposure and expanding the customer base. You will need to identify stagnation in the book and discuss with the owner what the current marketing strategy is. When discussing marketing techniques, ask if the current owner is taking advantage of cross selling opportunities or if their employees are trained in cross selling products. As marketing online continues to be an optimal source for client growth, identify the agency’s current use of technology (if at all) as part of its marketing initiatives.

Having a good understanding of the agency that you want to buy is vital to your negotiation of the purchase price and understanding how you can maintain and increase the quality and size of the book. Asking these and any other questions you have now may spare you from major pitfalls later.