We’ve learned that the agencies that don’t need to sell are in the best position to sell. Why? They can be more selective when choosing a buyer or defer to a later date if terms of a deal are not acceptable.
In which of these two positions is your agency? We’ve compiled a list of worst reasons to sell your agency based on our discussions with agency owners. Take a look at the list and see how many of these items look familiar and could potentially affect the outcome of a sale.
At first, this list might appear to be reasons to SELL your agency. But this isn’t necessarily the case. Many of these issues can be fixed with time and effort. All of them, however, will impact the value of your agency or the level of interest other parties have in purchasing it. The important point is that you can and should try to address these issues as soon as they are identified, and definitely before you decide to sell your business.
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You are spending 20% of your time servicing clients and 80% of your time handling the administrative affairs of
Buy
the agency. This situation is very common. Every agency owner wishes they could do nothing but solicit new clients or service their existing accounts. Over time, however, a natural creep occurs. You start spending more time on staff issues, technology issues and dealing with carriers. All of these matters are important, but they should not occupy a disproportionate amount of your time.
You no longer have the passion to grow the business. Most agencies owners are passionate about their business. We regularly
and consistently witness agency owners going through periods where they lose their passion and then later regain that passion. The cycles continue and the periods where they lose their passion become more frequent and longer.
You are in your late 50s and don’t have anyone in your company who is willing to risk their own assets to buy your agency.
Internal perpetuations can be difficult. Agency owners often prefer an internal perpetuation to an external sale. They often identify key employees and producers who are willing and capable of buying the agency. The negotiations become difficult when the new buyers have to provide personal guarantees to acquire the agency.
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Your current producers have large books of business and they don’t have a non- compete or non-solicitation agreement.
If a producer doesn’t have a non-solicitation agreement, you may have a tough time protecting the agency’s the book of business. The number of agencies that don’t have these agreements is incredible. In most cases, the producers have been with the company for an extended period of time and started before these agreements became common business practice. Our favorite explanation for a lack of a contract by an owner was, “They are loyal to me and won’t hesitate to sign an agreement if I asked them to.”
Agencies that don’t need to sell are in the best position to sell.
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You would like to grow the business, but don’t have the resources to invest in growth. You may also lack the ability to
hire producers. It is not atypical for agency owners to distribute all of the company’s profits during the year. As a result, a large cash outlay for investments in technology, new producers or other growth tools in a given year are often funded by the current year’s profits or an owner’s personal assets. While this may work during periods of excess cash flow, it may not be a viable option when cash flow declines because of a soft market and economic pressures as we experienced over the last few years.
You are losing clients to larger agencies because you don’t have the markets, products or services to protect your
business. The problem with this statement is that all agencies have lost clients to larger agencies. We have a client who lost their major account to a larger agency even though they had the same markets. The perception was that the larger agency must have had access to more markets. Whether the smaller agency has enough markets is a highly subjective matter. Size almost always offers the perception of market advantages.