5 Considerations When You’re Buying a Small Insurance Agency

5 Considerations When You’re Buying a Small Insurance Agency

Are you thinking of buying an insurance agency? Whether it's your first foray into the insurance field or you're considering expansion, purchasing an agency is a huge investment of time, energy, and funds. When you're searching for an investment opportunity, consider these factors before you make the leap.

1. What's the Motivation?

When you're moving into an existing business, you need to thoroughly understand your motivation before you buy. Do you love insurance and want to grow within this field? Are you looking for insurance jobs and see this as an opportunity to create your ideal insurance agency? Before you buy, think about whether your motivations are best served by purchasing an agency or by making a different kind of career shift.

Understand the motivation of the seller as well. Is the seller offering a well-established agency to move on to a different kind of career? Is the agency thriving, but the owner is retiring? The answers to questions about the seller's motivation will tell you a lot about whether the agency is a sensible investment.

2. What Kind of Purchase Do You Plan to Make?

When you're considering a purchase of a small insurance agency, you'll need to go into the deal with a good understanding of your own financial capacity. Are you able to get financing to back a leveraged buyout, or are you asking the owner to take a chance on you and offer owner financing, in which you pay back the cost over time? Are you thinking of rolling this agency into another existing agency or purchasing it as a going concern, clients, location, and all?

3. What is the True Value of the Agency?

Valuing an agency is one of the most difficult parts of a negotiation. Everyone is seeking a deal. Do you understand where the profit comes from and if this agency is indeed profitable? Look at the business's physical assets, the quality of employees, its history of sales, and its financial and risk management to see whether you're comfortable making an investment in it as an existing business.

4. Who Is the Market?

If you're purchasing an agency and plan to continue running it as it stands today, you need to understand the demand for your products. Where is the agency located? How much business does it do there, and how much occurs online? Understand the market and how it has shifted over time. This will help you determine whether agency profits will be consistent or whether they will shift a lot in the near future.

5. How Diverse is the Business?

What agency do you want to be in? Look at the portfolio of the insurance agency that you're considering. Some businesses are specialists; others are like a general store. You'll need to be comfortable with what the agency does if you're planning to run it as is, or you must be willing to make changes that could shift the business's profit and direction.

Whether you're developing your first insurance agency or looking for insurance jobs in emerging businesses, you need to have the networks and knowledge to help you agency succeed. The American Agents Alliance, a national insurance association for independent insurance agents & broker, can help. Contact us today and learn more about our membership benefits.

Leave a Reply