The highly anticipated day has finally come: you are getting ready to retire. After spending 40+ years working in your insurance agency, you have made the difficult decision that it is time to sell the agency and step down.

Hopefully, you have been running your business over the years as if you were going to sell it tomorrow. If that’s the case, this article will likely touch on all the things you have already done to prepare for the sale of your agency. If that’s not the way you’ve been operating all these years, this article will be a roadmap of how you should prepare for what you are going to experience over the next 2 – 3 years.

There are four parts to the selling process at the age of 65: emotional, planning, financial, and transition.

Emotional

In this first part of the process, the agency owner needs to make peace with selling something that they have invested their life’s work in. They need to become comfortable with no longer leading the agency and being the ultimate decision-maker.

The owner should prepare for life after the agency. Leading an agency is much different than working in an agency with a 2 – 3 year commitment to support the transition. You will have more time to fill your day and you do not want to spend that time driving your spouse, kids, the new buyer, and others crazy because you did not prepare for this transition.

This is likely the most challenging part of the selling process. So many successful owners are type A personalities who are confident, entrepreneurial, controlling, and independent. This makes for a great owner, but it means it’s a difficult process to prepare for. Many of those character traits are contrary to being an employee in a business you used to own for 40 years.

Get prepared mentally and emotionally for the transition from owner to supporter. If you can make this part of the process a success, it will make everything else so much smoother, help cement your legacy, and lead to a rich and rewarding experience after the sale.

Planning

Once you make the decision that you’re going to sell, now you’ve got to plan to make it happen. The average agency takes 240 days to sell. You are selling intangible assets – it takes time to prospect buyers, consider options, negotiate terms, complete the due diligence process, and legal agreements.

In preparation for this part of the process, the first thing you need to do is get your financial house in order. We would strongly encourage you to complete an independent fair market valuation of your insurance agency for three reasons:

1. First, the act of getting an agency valuation requires you to gather all the data that you will need in the selling process. The due diligence process is extensive and can be exhausting if you have not assembled the necessary documentation on the agency’s financial performance.
2. Second, it will give you an independent fair market value of what your agency is worth. If you’re going to have to obtain and review data and documents for the sake of the sale, you would be doing yourself a favor to know a number going into a sale. This will be a calculation of value based on many factors and completed by a valuation specialist. This will equip you with the information you need to get a fair offer for your agency.
3. Third, it will help identify the risk factors in the agency and areas where you may be able to make some quick adjustments. The exercise of the valuation includes a proforma adjustment process, so it helps you identify non-recurring expenses, begin adjusting your expenses in line with industry averages, and transition some of the lifestyle expenses away from the business P&L statement.

Financial

At this stage, you will need to begin understanding what role the financial part of the sale will play in the next chapter of your life. Your first meetings should be with your financial advisor and CPA to determine what you need in the sale to support the retirement that you desire and how you can get that return in the most tax-efficient manner possible. These two advisors are key to maximizing the financial aspect of your sale.

In working with a Valuation Advisor, such as IA Valuations, they can prepare a couple of mock offers based on your valuation for you to share with your financial and tax advisors. That way, they can work from a place of what is likely to transpire vs. a fictional scenario.

As you do this, the first question you need to answer on the financial side of the agency sale is whether you want a lump sum payment or would prefer to be paid over time. Both options are common and readily available in the industry today. Knowing what your financial needs are and your risk tolerance will help you make this decision.

Both payment structures have their advantages, and your preference will depend largely on your financial position and need for resources. Taking the lump sum payment results in an immediate large check to Uncle Sam, whereas the payment plan will spread that check out over time. However, the payment over time has a risk that you are depending on the strength of a contract and the ability of the new agency owner to operate the business successfully so they can continue to pay you.

Transition

By this point in the process, you have likely signed a letter of intent or a purchase agreement. Depending on which stage you are in will determine what steps to take, but either way, you must prepare to transition.

Someone just paid you a lot of money to purchase your insurance agency, and for that, you owe them a commitment to a successful transition. You also owe your clients, legacy, staff, and carrier relationships a commitment to a successful transition.

This will require you to be an active partner with the new buyer in transitioning the leadership responsibilities in the agency, identifying all the key account relationships that you have, and beginning an extensive process to transition those relationships to the new buyer. Regardless of how you feel about some of the decisions they are making, it’s in their hands now. They paid you good money for the business, which is going to help support your retirement, now you owe them a sincere effort to transition as much of the business as possible to the new agency.

The agency owner has to learn to be comfortable with decisions that the buyer makes that they don’t agree with. They have to be supportive of any of those decisions regardless of how they feel about them. This includes staffing decisions, agency name, location, carrier relationships, and clients that they serve.

As the owner and likely lead producer, much of the success of the transition relies on your willingness and ability to be an active partner in transitioning the accounts. You can provide your opinion but know that the decisions now rest with the new owners, and you must support them and whatever decisions they make. The vetting and second-guessing are over now; you’ve got to be 100% committed to making the transition successful.

In conclusion, selling your agency at 65 is a significant undertaking. You have less time to maximize the value and transition of the agency than you would have had if you started at 58. This means you must be hyper-focused and committed to getting it done in a timely and efficient manner. Any delay in the transition will only erode value, alter your retirement plans, and require you to be more engaged for a longer period.

If you find yourself in this situation, we encourage you to reach out to IA Valuations CEO, Jeff Smith, JD, CIC, CAE at jeff@iavaluations.com to help you prepare for this process.

By: Jeff Smith, JD, CIC, CAE

About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 250 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling, and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.

The information provided in these documents is general in nature and shall not be construed as personal legal, tax, or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.

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