You’ve put significant time and effort into building your insurance agency. Don’t forget to think about what comes next. Just as growing an agency successfully requires a good strategy, a solid perpetuation plan also requires strategic thinking.
What Is an Insurance Agency Perpetuation Plan?
What do you want to happen to your insurance agency once you leave the industry? The answer is your perpetuation plan, also called a succession or exit plan.
A solid perpetuation plan can help you obtain the full value of your hard work, ensure that your legacy continues, or both. Without a perpetuation plan in place, you may find yourself forced to accept a low-ball offer for your agency. Or you could end up handing your agency over to someone who will run it into the ground, destroying everything you’ve worked so hard to create.
Your agency is your legacy. Your perpetuation plan is how you protect it.
1. Start Thinking About It Early
You may think that your retirement is a long time off, but what if you’re wrong?
Life can change fast. You could be forced to quit work for health reasons, or because you need to take care of a loved one with health problems. Something could push you to relocate.
It’s not as unlikely as you might think. According to the 24th Annual Transamerica Retirement Survey, 58% of retirees say they retired earlier than they had planned. Among these retirees, 46% did it for personal health reasons and 20% did it for family-related reasons.
An early retirement isn’t always bad – many people strive to retire early – but it can be financially disastrous if you’re not prepared. As an agency owner, your perpetuation plan is likely a major part of your retirement plan, so it’s smart to be ready.
2. Know the Value of Your Agency
Do you know what your agency is worth? To you, it’s worth all the time and effort you’ve put into building it, but what would it be worth to a potential buyer? To answer this question, you need to perform an insurance agency valuation.
If you’re planning to sell your agency any time soon, an agency valuation is an absolute necessity. Even if you’re not planning to sell, conducting periodic valuations can help you obtain an unbiased view of your agency’s performance. This will allow you to make changes to increase the value, and it will come in handy if you need to sell sooner than expected.
There are different ways to conduct an agency valuation, and some are more involved than others. One common method is called EBITDA, which stands for earnings, operating expenses, interest, taxes, depreciation and amortization.
3. Decide What Matters to You
If you know what you want out of a perpetuation strategy, you’re more likely to be satisfied with the outcome.
For example, are you solely interested in getting top dollar for your agency, regardless of what that means for your clients and employees, or do you want a strategy that ensures your employees and clients will be well cared for?
Are you fine with a name change, or would you like your agency to continue operating under its current name?
Write down a list of your preferences and priorities, including nonnegotiable items, so you can move forward with a clear picture of what you want.
4. Explore Your Options
You may be aware of some of the perpetuation options available to you, but creating a clear strategy will help you understand all of your options and decide which are the best fit for you.
This is a big decision, so take some time to consider all of your choices before settling on a strategy.
Some common perpetuation strategies include:
- Passing on ownership to a family member. This can be a great way to give your children a headstart in their career and to build a true legacy. However, there are a few details to work out first. Most importantly, are you sure this person actually wants to take over the agency? They may have other plans. You also need to consider financing. Are you expecting this person to buy the agency from you, and if so, how will they finance it?
- Enabling a partner or colleague take over. Again, it’s important to make sure the person in question wants to take over and to consider the financial details of the transaction, and how and when it will be executed.
- Selling to an outside buyer. For many agency owners, this is the only practical option, and it can be the most lucrative. However, which outside buyer you go with can make a world of difference. There’s much to consider, including the buyer’s resources and reputation. Think back to the priorities you identified in step three.
Heffernan Network offers two perpetuation options. One option is a traditional agency acquisition. The other option lets you keep your existing brand, including your name, staff and operations, while elevating an identified leader or selecting a new leader. Learn more.
