GET MORE BUYING POWER

by Curt Van Auken, SFB

Growing Your Agency?

Here are some tips to get you the buying power you need.

Buying an insurance agency demands a lot of preparation and planning. However, when you have a proper plan of action before you begin, it not only makes the process more efficient, but it can enhance your buying power. Here’s what you should do before purchasing an agency.

Keep cash flow in your business. When looking for financing to buy an insurance agency, cash is one key element that lenders look to help determine the value of an agency. If you want to use the value of equity in your current book of business to purchase a new book of business, it is important to leave as much cash in the business as possible.

Avoid abnormal expenses.

The value of the book of business is determined by the profitability, not necessarily the revenues associated with it. Taking money out of the business through excessive owner salaries will hurt the overall value of the book of business. Abnormal expenses, which would reduce the EBITDA, would also reduce the value of a book of business. Separating personal expenses from business expenses are a big part of maximizing the value of your book of business.

Have a good synergy with your insurance carriers. When buying an agency, you should familiarize yourself with the insurance carriers of the prospective agency to know if they mix well with your current insurance carriers. This is a large factor in the agency you are looking to buy, as contingency income could be greatly increased with the carrier mix being of a newly created or expanded insurance agency.

Consider whether to keep the same niche or start something new. Niche markets focusing on a specific industry, product, or profession could set an agency apart. If you are thinking of starting a new niche with the agency you are purchasing, make sure you have the resources and knowledge in place to develop that niche before you begin.

Employ quality staff to help handle the transition.

Quality employees, that are fully engaged, are always being sought out, especially with the current workforce. In general, having high quality employees reduces stress when operating an agency. This can be even more evident in the transition of ownership. Be sure you have good support staff to simplify the transition and be prepared to keep them engaged in your business.

Keep detailed records.

Detailed records make the process of buying or selling an agency much easier and quicker. The better the bookkeeping, the less questions that will come up during financing. If questions do come up, high quality recordkeeping makes it easier to sort out any issues.

Partner with financial experts.

It is beneficial to work with a bank that understands the insurance industry. For additional advice and guidance in buying an insurance agency, Security Financial Bank’s Insurance Lending Team is happy to help. Call 888-254-0615 to get started.