One of the great mysteries I have found through my tenure is that no one tells a business owner what happens after selling their shop. It doesn’t matter if it’s an insurance agency, candle manufacturing, or beauty salon – selling brings some hard realities that you as a business owner should think through long before signing the papers and cashing the check.
Think about it. Most business owners are typically “alphas” – take charge, go-getters, leaders, strong, influential, etc. After you sell your insurance agency, you won’t have a say anymore. Are you ready for what that means?
Someone once said, “It’s easier to start a business from scratch than sell it for what it’s worth.” I believe there is truth to that statement.
Starting the business, you are laser-focused, aggressive, and pushing yourself and your team to be successful. After all, you likely started the business to fulfill your goals and dreams, build wealth and provide for yourself in retirement.
Later, when the business is more established, the goal is not only to grow and have a profit but also to create a business that can run without you and live on after you. At some point, you need to start thinking of your exit strategy and preparing to send your little child (aka the business) into the big world alone.
Reasons to sell an insurance agency
There are several circumstances that might prompt (or force) you to take action to sell your insurance agency:
- Need to retire
- Love the industry but hate the administration and running the business
- Perpetuation – a desire to keep your legacy in your community by selling or giving the business to a member of your family or staff
- Changes in company, vendor or supplier relations
- Production requirements
- Not enough markets, or the market is changing drastically
My story was simple. I was at the age of my father’s first heart attack. I had no family members to keep the agency going and no strong internal employees to continue the business if something would have happened. I also didn’t want my family to be stuck trying to sell an agency for a nickel on the dollar. Yes – I had disability and life insurance – but I had a personal reason to see the agency continue in my absence.
Another challenge some of us have is not knowing when to quit. Unfortunately, we don’t know if we will get hit by a self-autonomous vehicle tomorrow or if we will contract dementia before we hit 60 years old.
Think about the music artist or athlete who hung on beyond their prime. I can recall several groups I grew up with in the ’70s that are now on their geriatric tour. No longer jumping around the stage, some have to sit down, and they can’t hit the high notes. After the show, I felt horrified because they just weren’t the same as they were way back when.
We hear all the time of marquee athletes that hang on for one more season, or instead try to jump to another professional sport, and next thing you know, they become the brunt of so many jokes.
Determining your “Why”
Why is it so hard to let go?
After working hard to build a business, it can be hard to imagine stepping away. We can’t think of anything else but our business. And God forbid anything happens between starting and selling the business that would disrupt our goals and dreams.
It can help to focus on the end game. The reality is, you can’t run your business forever. Where do you see yourself and what do you want to be doing in the next year, three years, five years, ten years?
When you truly sit down and think about your WHY, you can determine your goals for selling your insurance agency:
- Get the most cash out of the agency value
- Stay involved, but step out of the administration role
- Keep your agency in your family or in your community
- Walk away
- Combination of any of the above
- Any other goals that are important to you
Other critical steps in your perpetuation journey
- Figure that if all goes well, you should seriously consider how to replace yourself at least 5-10 years before you do.
- Have your agency evaluated for what it is worth by an independent firm – at least five years out
- Put an advisory team together that should include:
- Business Coach / Trusted Mentor / Advisor
- Consulting Firm
- Get your agency in order for the next 3-5 years
- The last three years, focus on minimizing your expenses.
Things to watch out for
When you finally get to the point of signing the deal, watch out for crucial things that can make your post-agency ownership experience an emotional train wreck:
- Bait and switch from the buyer – they are only interested in your book or employees and pull last-minute changes at closing
- If the buyer has experience with other agency acquisitions – ask for references to speak with those former owners
- What happens if the buyer defaults on the purchase – they could run the agency into the rocks, and you are left with nothing. Even if you demanded personal guarantees
- Liabilities / E/O – did the buyer assume all, including the E/O Tail?
- What about a young buyer who wants your lifestyle but hasn’t proven he or she can succeed?
Even when the process goes smoothly, selling your business may bring up unexpected emotions. Your name will no longer be on the door. Maybe you’ve been running things for decades, but now there is a committee to evaluate if they want to spend $100 on the local Little League.
Philosophical differences in running the agency will happen. Maybe the new owner likes call centers and wants to do away with your personal lines book, change producer compensations, move your office to another town, drop your agency name altogether, etc. Can you remain quiet and supportive?
This is merely a summary of issues that could impact you as you sell your insurance agency. This is why it is critical to understand it is never too late to take the time to stop working for your agency and work on it. Take the time now to think through what you want to happen to your agency in the future and what your goals are for selling or perpetuating the agency. You, your family, co-workers, and clients will be better off in the long run.
The views, opinions, and positions expressed herein are those of the author alone, and should not be considered to represent official positions of Liberty Mutual nor to imply any endorsement by Liberty Mutual.