Insurance agencies are well known as a recession-proof businesses, which means it’s not usually affected by the conditions of the economy. That’s one of the main reasons why people want to start an agency like that. Another reason is that insurance products are a necessary part of modern life, as it’s not recommended to own a car without automobile insurance for example.
So insurance agencies typically sell a variety of insurance and financial products, not only for cars, but also life, health, property, casualty, disability or even long-term care insurances.
It does not mean that everyone has one of those, however it’s correct to assume that everybody needs it, and it’s agency owner’s job to make sure people understand why they need insurance.
Running an insurance agency is definitely not an easy task, even more so because it is a safe and profitable business. But selling it is not easy either, as most of agency’s owners rely on an old formula for determining their businesses value. This old formula is known as: their own business knowledge and client portfolio.
Sometimes, however, relying on common sense is not the best choice, especially because most of agency’s owners sell their insurance agencies for a lower price than it actually is worth.
In the next few topics we’ll show some guidelines to be followed in order to sell your insurance agency for maximum value.
What is your Insurance Agency worth?
We have already said that relying only on your expertise may be a poor choice when it comes to selling your business, as you tend to make a deal much smaller than what you truly deserve.
And what is the common sense? A non-instructed agency owner usually sells his business and gets a multiple between one and two times revenue. But that’s a mistake, your business can be much more valued.
It’s true that many transactions end up with a multiple of one or two, but depending on the size of your business, the difference between getting a multiple of 1 and a multiple of 2 may be millionaire, so you better sell in the best way possible.
- What are the sales?
- What is the profit?
- What are the growth trends?
- What is driving new sales and is that sustainable?
- What channels do new customers come from and what is the breakdown of each channel?
- What is your market position?
- Is your Location favorable?
- How reliant is the business on the owner?
- What systems and processes are in place to run the business?
What makes an Insurance Agency worth more?
Before closing the deal, however, you must be aware of some aspects that can improve your agency’s value and make it worth even more. A professional business broker can help with this task, but we are going to list here these aspects so you can have a clear picture:
- Predictable key drivers of new sales
- Stable or growing traffic from diversified sources
- Established suppliers of inventory with backup suppliers in place
- Traffic stats
- High percentage of repeat visitors and repeat sales
- Clean legal history
- Brand with trademark, copyright or legal concerns
- Documented systems and processes
- Growth potential
After gathering all financial information, you may stick to details. Is your business getting bigger? Does your traffic come from diversified sources? What is your business growth potential? Are you retaining clients?
Provide potential buyers with these information so you can set an even fairer and more reasonable asking price.
What does the average Insurance Agency sell for?
Since 2005, when our research began, there’ve been 209 insurance agency’s sales. In 10 years, total transaction value was almost $90 million, with the good average multiple of 2.46 — almost two times bigger than the best scenario expected by agency’s owners.
As you can see, if you would rely only on common sense to make a deal, you’d be get much less than your business actually deserves.
And as insurance agencies are a recession-proof business model, average sales price is a very good one: $417.027.
What is the most frequent deal size?
The most frequent deal size however is what insurance agencies usually are valued. In this case, most of them closed deals at $150k, but it is normally lower than average sales price.
As the chart can show you, in 2015 most deal sizes were less than $250k, which can be explained by the fact that most of the insurance agencies sold were small and independent businesses. Ther normally worth less than bigger agencies.
The same happened in the previous years.
Is the Insurance Agency market getting bigger?
As it happens to most of business models, insurance agencies have it’s ups and downs. 2015 was an excellent year for it, with a total transaction value of more than $10 million. The same can not be said of 2014 and 2013 numbers.
However it only reflects what agencies that were sold in those years were valued. And always keep in mind that most of them are sold by a lower price.
Are bigger businesses worth more?
Yes! Let’s take a look at 2015 numbers.
Insurance agencies sold for less than $250k had a multiple of 2.01, which is under the average multiple rate. Business sold for more than $250k and less than $500k, however, had a multiple exactly two times bigger: 4.02, which is up to average multiple.
In previous years, mainly 2013, 2011 and 2010, that also happened.
What states have the most business deals?
Florida and California are by the far the best states to sell an insurance agency. You can also give a shot in places like Texas and North Carolina, but business is not going that well in other american states.
Why would you sell in the first place?
The reason to sell always varies from each person. Maybe you are looking for new challenges, businesses and opportunities, or you just want to enjoy your family and retire. Although it can seem tempting to get your hard worked cash, make sure that you are clear on the motives so you don’t regret afterwards.
How long will it take to sell your business?
If you have read all the necessary steps to understand your valuation, and think you have focused on all the topics that make your company worth more, it is maybe time to start the process. Selling your business is a long-term process, and doesn’t happen overnight. Usually companies sell in 12 months, but you can also see deals getting closed in 6 to 9 months depending on the opportunity.
What is the process of selling your business?
This step by step process will help you get less confused when you make sure you are ready and confident to let go of your business, and perform a nice and positive sell. Many entrepreneurs forget about a step, or just don’t have the right guidance to know all the stages necessary and get lost through the process. Don’t forget to go through all of these, and if you have any questions, comment at the end of the article or contact us for more help.
Who will buy your business?
If you are wondering about the buyers that can be interested in your Insurance Agency, don’t worry, there are many options and possibilities. From First Time entrepreneurs, to businessmen interested in new opportunities, the chances are that in the this particular business it may likely be a person who already had a store in the field.
Insurance agencies are a recession-proof business, but most of owners rely on their own expertise to sell their agencies. Our research say it’s a mistake to do that, mainly because common sense may make sell your business for a lower price than it deserves.
To avoid that you can always hire a professional business broker and, of course, follow the tips we provided you in this article.
If you want to start accelerating your buyout process, fill out our free valuation form and get your business valued today! Leave your comments on any doubts or feedback, we are glad to hear your thoughts!