Growing Your Agency? Tips to Give You More Buying Power
Buying an insurance agency demands a lot of preparation, planning, and paperwork. However, when you have a proper plan of action before you begin, it not only makes the process more efficient, but it can enhance your buying power. Here's what you should do before purchasing an agency.
Keep cash flow in your business.
When looking for financing to buy another insurance agency, bank lenders will look at your cash flow to determine the value of your business. If you want to use the equity in your current book of business to purchase a new book of business, it is important to leave as much cash in the business as possible.
Avoid abnormal expenses.
The value of the book of business is determined by the profitability, not the revenues associated with it. Taking money out of the business through excessive owner salaries will hurt the overall value of the book of business. Abnormal expenses, which would reduce the EBITDA, would also reduce the value of a book of business. Separating personal expenses from business expenses are a big part of maximizing the value of your book of business.
Have a good synergy with your insurance carriers.
When buying an agency, you should familiarize yourself with the insurance carriers of the agency and if they mix well with your current insurance carriers. This is a large factor in the agency you are looking to buy as contingency income could be greatly increased with the carrier mix being brought on.
Will you keep the same niche or start something new?
Niche markets focusing on a specific industry, product, or profession could set an agency apart. If you are thinking of starting a new niche with the agency you are purchasing, make sure you have the resources and knowledge in place to develop the niche before you begin.
Employ quality staff to help handle the transition.
Quality employees are always being sought out, especially with the current workforce. In general, having high quality employees reduces stress when operating an agency. This can be even more evident in the transition of ownership. Be sure you have good support staff to simplify the transition.
Keep detailed records.
Detailed records make the process of buying or selling an agency easier and quicker. The better the bookkeeping, the less questions that will come up. If questions do come up, high quality recordkeeping makes it easier to sort out any questions or issues.
For additional advice and guidance in buying an insurance agency, Security Financial Bank's Insurance Lending Team is happy to help. Call 888-254-0615 to get started.