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What Is Perpetuation Planning?

Your retirement plan might involve sitting on a beach, renovating your house, or spending a lot of time with the grandkids, but does your business have a retirement plan? Perpetuation planning means that you have a plan for your business when you retire so that your business can continue if you so choose. 

What Is Perpetuation Planning? 

Your insurance agency does not need to stop working when you stop working. According to the Insurance Journal, there are many ways to ensure that a business can carry on. The four major ways that people usually choose include: 

  • An internal sale of the business to people who work for that business. This includes members of your family. 

  • Arranging for someone to inherit the business through a direct gift or a stock purchase.

  • The sale of the business to someone else; this could be another insurance agency, for instance. 

  • Combining with another agency so that you can ultimately transition and become a single agency.

It's helpful not to just have a single plan but multiple, layered plans. For instance, if you'd like to have a child inherit the business but that child decides that she does not want to do so, what then? You could plan for your children to inherit, but you could also plan for the sale of the business just in case your children don't want to run your insurance agency. 

Start Perpetuation Planning 

Like your retirement planning, perpetuation planning begins long before you retire. According to IA Magazine, perpetuation planning "takes a minimum of five and optimally 10 years to get everything in place." Proper planning takes time and is not a spur of the moment activity. 

Starting your perpetuation plan gives your employees some certainty around your retirement. They're not worried that you'll get sick or suddenly decide to retire, leaving them without any employment at all. 

Ideally, perpetuation planning should happen before you really plan to retire at all, just in case you get sick, disabled, or injured. The more of a plan you have in place for the "what ifs," the more secure your business will be. 

What Happens Without A Plan? 

Without a perpetuation plan, your business and your employees are at risk. They may not feel secure, and as your retirement approaches, they could even go elsewhere in anticipation of that day. Your business is at risk too. Even though you might have good intentions, most businesses don't get passed down to another family member, or that family member can't run the business effectively. 

Perpetuation Planning: Insurance Agency Options 

How do you prepare? Here's a step-by-step list of what needs to happen at your agency:

  • A few years before retirement, work with consultants and financial analysts to consider your options thoroughly. Start planning your first and second options. You could also get financial options in place – for instance, allowing producers to own their books of business so that you don't need to transfer them over.

  • Nurture that relationship. If you're planning to sell to an employee, make sure that person knows the ins and outs of your insurance business, for instance.

  • A year before you retire, get it in writing. Write down your plan and how it will proceed. Write down your backup plan.

At American Agents Alliance, we offer a wide range of possible membership benefits. One of these benefits is assistance with perpetuation planning. Members have a free consultation and a discount on agency consulting services so that you can plan for the future success of your business. Are you curious about what American Agents Alliance can offer your business? Check out membership benefits today.

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