AGENCY PERPETUATION

ACT NOW OR FOREVER HOLD ... PART II

In the August 2021 Primary Agent (https://issuu.com/primary_agent/docs/primary_agent_august_web), agency perpetuation expert Brian Burke offered insights into valuation trends and projected what’s to come in the world of agency deals. On the following pages, he follows it up with advice on necessary, long-term priorities for a successful agency transition – no matter what your role is.

By Brian Burke, B. H. Burke & Co., Inc.

Greetings, IA&B members: When we “talked” a month ago, we had imagined you were at an agency-perpetuation conference and had just moved from the main hall into four rooms for break-out sessions. We imagined further that you had done the perpetuation-fitness assessment we recommended and had gotten some new direction and energy behind your perpetuation intentions.

Your charge in each of the sessions was to come up with two short lists: List A states what you wanted the agency’s main business priorities to be. List B states what you see as your own personal, job-related priorities. The priorities on your lists should be medium- to longer-term in nature. You may want to land a big account next week too, or clean up some data-entry backlogs, and those things are important. But your priority-list items should have a longer-term horizon.

Here is what we at B. H. Burke & Co., Inc. think should be on you’re A list:

If you are in break-out room No. 1 with other controlling owners or managing partners, here are the items, not in any particular order. All are important.

▲ To have or get a good, up-to-date understanding of the agency’s value, and what causes it. More on this below.

▲ To have or get a current, sensible agency-ownership agreement that all the parties understand. (Ownership agreement is the generic term for what are often called shareholder agreements and buy/sell agreements.) More on this below, too.

▲ To have or get a multi-year revenue-growth plan. We have nothing to say about what level of growth makes sense for you. But we have plenty to say about your having a plan that fits your reality and your aspirations.

▲ To have or get a multi-year profit plan. By profit we mean pretax cash from operations, adjusted for non-recurring and owner-discretion items (best measured as pro-forma EBITDA). Profit pays for everything.

Shouldn’t there be something on list A about systems, carriers, books of business, or staffing? Maybe, but we see those as necessary parts of the above four items.

If you are in break-out room No. 2 or 3 with minority owners and producers aspiring to be owners, here they are. Remember, this is list A – what you want the agency’s priorities to be. What you want the leaders to have as priorities.

▲ An up-to-date understanding of the agency’s value, and what causes it.

▲ A current, sensible agency-ownership agreement that all the parties understand.

▲ A multi-year revenue-growth plan.

▲ A multi-year profit plan.

Wait a minute! Is this a big typo? Nope. Aren’t these the same things that should be on the A list in room No. 1? Yup.

If you are in break-out room No. 4 with other agency leaders for whom ownership is not in the cards (such as in a family agency), here they are.

▲ An up-to-date understanding of the agency’s value, and what causes it.

▲ A current, sensible agency-ownership agreement that all the parties understand.

▲ A multi-year revenue-growth plan.

▲ A multi-year profit plan.

Wait a minute! Aren’t these the same things that should be on the A list in the other three rooms? Yup.

Message: Internal perpetuation plans are not just for current owners and managing partners. They are for everyone to whom the agency’s success is important. Executives and leaders make the decisions. We understand that. But all the players benefit from their having the right priorities.

Message: We don’t know what should be on your B lists. But we do know that it should be supportive of, or at least not in conflict with, what’s on the A lists.

Final comment on the A-list priority related to value. We’re not saying, go get an appraisal. No, we are saying that you should get a qualified appraiser who will give you the value in a reasonable range; will explain what is causing the value to be what it is; and will help you estimate the likely impact on value of the things that might happen in the industry and the economy.

Final comment on the A-list priority related to ownership agreements. The main exposure here is death and disability. The agreement should be clear about what happens to shares, when it happens, at what price, and on what terms. The retirement piece should be in there too, but that can usually be worked out with clear heads as the perpetuation plan is finalized. Death and disability really do happen, and they can lead to turmoil if not planned for properly.

Brian Burke is the founder and semi-retired chairman of B. H. Burke & Co., Inc. Learn more at BHBco.com.