You're making the leap. You've put your insurance agency up for sale. You might be moving, retiring, or looking for a job outside the realm of insurance jobs. Whatever the reason you're selling, you need to make sure that you get the right price for your agency. How do you value an insurance agency? 

Know What You Are Selling 

When you're selling insurance, you and your customers generally know what you're selling. You're giving customers the opportunity to protect their homes, cars, and lives.

When you're selling an insurance agency, what you're selling is less clear. Are you selling the building? Will all of the people who work for your business come along with the business? When you're selling the bricks, the mortar, and everything else that goes with your business, this is called a going concern buy.

A book acquisition is more common. Instead of buying infrastructure, your buyer is buying your client relationships - your book of business.

A roll up transaction is when another agency purchases your agency and rolls it into their own. They may keep some of your agency infrastructure, but they may not need all of the items or employees that your insurance agency has right now.

Be Prepared to Answer Questions 

Business valuation needs to involve diligence. You'll need to review your books to ensure that you have a true understanding of revenues, expenses, and your client base. According to Agency Equity, "The pro forma earnings are what the buyer looks at to determine their projected return on investment (ROI) and debt service coverage on any financing." You'll need to have information available that will help them determine what kind of cash flow they should be able to expect.

Work With the Professionals 

As you work to value your business, it's a good idea to contract with a firm that specializes in business valuation. They'll not only understand your earnings and gather the information you need to place a value on your book of business, but they will also understand the risk associated with earnings and the market conditions. Valuation is not an exact science. The valuation can take different forms and different firms may come up with somewhat different values for your business.

Know What Kind of Information You Need 

According to the Insurance Journal, for businesses with under $500,000 in commissions, "an Opinion of Value basically covers the creation of a pro forma income statement on the book of business, a basic description, and the value calculations using three methods of valuation." This Opinion of Value is less expensive than a full valuation and may be the best option for the sale of a small agency.

If you are selling your agency, make sure that you list it in a venue where other independent agents can see it. Contact us today to learn more about our resources for insurance jobs, agency sales, and independent insurance agents.