Time is of the Essence – Planning for the Future

As we approach the end of the year at the time of writing, it is important to remind agency owners that time is of the essence, when planning for their eventual exits from their agencies. When perpetuating an agency, it is important to remember that the earlier you start your planning, the more options you will have. Agencies that wait or don’t plan effectively will have fewer viable options and may not realize the full potential value of their agency.

Remember that perpetuation is not an event but a process. By carefully planning and executing the gradual transfer of stock, the agency can transition to the next generation of leaders and position itself for success in the future.

The key is to start with the end-goal in mind and build a practical plan to get there. Then, make sure you are revisiting the plan early and often – what we call perpetual perpetuation planning. By revisiting the plan regularly, you can make sure you are on track, and if not, you can retool the plan to reflect changes in the agency or in the perpetuation goals.

Agencies have several options when perpetuating.  In an internal perpetuation, they transfer agency stock, relationships, and leadership to the next generation of family and/or other key employees with the intention to remain a viable operation. To perpetuate externally, an agency could consider merging with another agency, or selling outright to another agency, broker, bank, or private equity firm.  Agencies tat have a formal perpetuation plan are typically valued higher than agencies that do not have one.

The goal of an internal perpetuation is to keep the agency legacy alive in the community for the next generation of employees or to keep the agency in the family.  This method of perpetuation takes the most time and the most planning and follow-through to be done correctly. For agencies that wait too long to create and execute their plan, an external perpetuation will likely be their only option.

In many cases, deal values for external sales exceed the prices paid for internal perpetuation, but you want to make sure your end-goal is achieved by establishing a plan versus a panicked sale at the end of your career because you failed to plan. Getting an agency valuation is a key piece of your planning, and OIA is positioned to help. Our fair market valuations will help you dial in your value to either internal or external buyers and will help you maximize the value of your largest asset.  No matter what your exit strategy is, it is imperative to start planning early to give yourself the most options. Options have value.

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