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The Rough Notes Company Inc.



November 04
13:48 2016

Maximize the value of your agency by treating it like a business

In the June issue of Rough Notes, we discussed the key operational components to consider during the agency perpetuation process to maximize value. Operations are key to value, but there are also several financial  and legal items to consider.

All agencies will eventually perpetuate. As an owner, do you acknowledge this reality and do you operate your business like it is for sale all of the time? Or do you treat your business as a personal bank account? Treating your business like a business will allow you to maximize your agency’s value as it stands today. More important, it will provide options for you, your family, and your team going forward.

Doing this will allow you to be prepared for the unexpected in life. Although we try to plan for the future, we must also plan for the curveballs life throws at us.

Here are some key points to think about:

  • Annual tax return preparation is not financial reporting. As an agency owner, it is beneficial to review financial statements and other metrics on a monthly basis as opposed to waiting until the end of the year. Although important, closing the month within two business days is not as imperative as setting high standards and adhering to them.
  • Although it may be tempting to use your agency’s bank account like a personal bank account, resist the temptation. Treating your business like a business will improve retention and profitability. In doing so you will also demonstrate financial responsibility to a potential buyer. In addition, this can help you avoid the gray and will protect you from potential tax penalties. You probably do not really look good in stripes.
  • We have met several agency owners who serve on the board of a financial institution. There is nothing wrong with this. Just because you are on the board of a bank does not mean that you want your agency to be a bank. If your customers value you and your services, they will pay you. Set reasonable payment terms and enforce them. Make every effort to maintain accounts receivable at a reasonable level and try not to allow clients to go beyond sixty days past due. This will save you money and headaches, and it will demonstrate financial discipline to a potential buyer.
  • Evaluate your operating expenses and maintain them at a healthy level. An example of this would be with regard to your office space. Of course, you want an adequate amount of space to operate your business; 250 square feet per teammate is the standard. If you currently operate with 500 square feet per teammate it may be time to reevaluate and consider consolidating.
  • Most buyers do not want to inherit your long-term lease obligations. Consider buying your assets (computers, phones, and copiers) instead of leasing them.
  • It is important to watch expenses. You do not, however, want to cut to the bone. Continue to invest in your business to drive growth. A healthy balance between growth and profitability will be rewarded in a valuation.

Metrics may be tracked in a multitude of ways, but more important is truly understanding what these measurements mean as they relate  to your overall agency. Focus intently on financial matters that mean the most to you.

Legal matters

Whether you are planning to sell your agency this year or ten years from now, it is important to understand what you truly own. If you have joint ownership with outside retail brokers or with certain employees, it can cause confusion in the day-to-day operations as well as during negotiations with a potential buyer.

To avoid this, make sure you have formal written agreements with producers, co-brokers, and other teammates that clearly outline ownership and buyout provisions. It is much easier to negotiate these items at the start  of the relationship than when you  are in the middle of an acquisition  with a buyer.

As with financial review, it is important to have a regular legal review with your attorney to ensure your corporate documents are in good order. You would not recommend that your clients buy insurance on their own. Even if you stayed at a Holiday Inn Express last night, that doesn’t mean you are an attorney. Resist the temptation to draft your own contracts.  A small glitch in a document could make or break a sale to a potential suitor.

Remember, not all attorneys are the same. A corporate attorney can be utilized in day-to-day business, but contracting with an attorney with specific insurance acquisition experience can prove extremely valuable if you are in fact planning on perpetuating in the near future.

The authors

Vaughn Stoll is the director of acquisitions and director of internal operations at Brown & Brown, Inc., in Daytona Beach, Florida.  Vaughn has participated in over 100 closed transactions with the company. Before joining Brown & Brown, Vaughn worked for a Big 5 Accounting firm and was also the CFO of a small public company in South Florida. He is a CPA and a licensed property and casualty agent in Florida. Vaughn can be reached at

Vicki Rhodes has played a critical role in both new business telemarketing and corporate development, winning several awards within the company for her efforts. She has made direct connections with thousands of insurance agencies and has cultivated active dialogue with over 400 insurance agency owners.  Vicki can be reached at

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