Many have a philosophy that age is just a number. For certain mindsets that is true but based on our research in the world of independent insurance agency valuations, the owner(s) age has a meaningful impact on the value of an agency.
Based on the 100+ valuations we have completed over the past three years, our data shows the older an agency ownership is, the lower their agency value.
So, is age the cause or just a correlation? It is unclear at this point but whatever you believe is the defining factor, based on our data it is indisputable the owner’s age has a bearing on the growth, profitability, and ultimately, the value of the agency.
Over the next few weeks, we are going to break down the data points related to an owner(s) age and their growth, profitability, and valuation multiple. In the meantime, here are a few things that you should consider as you contemplate how to maximize the value of your agency:
- Complete a fair market valuation of your agency – to understand where you are going you must know where you are and where you have been. A valuation will help you understand your agency’s value, identify the risk factors in your agency, and develop a plan around each one to improve upon it. We encourage agencies to make an agency valuation part of their annual business planning processes to ensure that you always have a good barometer on the value of your agency and are working on addressing the risk factors.
- Develop a formal perpetuation/transition plan – every situation must have an exit strategy, particularly something as valuable as your agency. Whatever wishes you have for your agency – internal perpetuation or external sale – you must have a plan with your exit strategy. The more planning you do in advance the smoother the process and will likely lead to capturing a higher agency value.
- Establish a contingency buy–sell agreement – this is critical for every agency but particularly for those with single owners. The contingency buy-sell is insurance for your family, employees, and clients that if the unexpected happens to you, a structure is in place to preserve the agency and its value.
- Recruit and mentor young producers and agency staff with the potential of becoming owners – recruitment of younger producers and prospective future owners is key to maximizing your agency’s value. Even if you decide to sell externally, having successful younger producers will enhance the value of your agency.
Keep in mind, Independent insurance agencies are trading at their highest multiple ever. That being said, there is a correlating loss in value as an agency’s owner(s) age. The data we are going to share on this point makes planning even more important. Craig Niess, the Business Valuation Manager for OIA (Ohio Insurance Agents) and IntellAgents, will lead your valuation and can guide you with the planning of your agency and improving your valuation.