 |
 |
 |
|
Agency Financial Management Strategic planning—Both short term and long term By Paul J. Di Stefano, CPA, CPCU It is interesting to observe how agency principals approach the strategic planning process. At the risk of stating the obvious, it might be helpful to define what we mean by strategic planning. From Harbor Capital’s perspective, strategic planning is the process by which agency principals identify short- and long-term goals and objectives for themselves personally, as well as their agencies, and decide on the methods they will employ to reach those goals and objectives. Strategic goals and objectives can be stated on both a macro and micro basis. On a macro basis, goals and objectives are usually general in nature and look like items that one would find in a mission statement. On an operating level or micro basis, goals and objectives typically address specific items such as expanding market relationships, building a production team, and mergers and acquisitions. Equally important in the planning process are the principals’ personal goals, which encompass key issues such as perpetuation timeframes and exit options for the principals. In too many cases, we find that the agency has no formal or even informal strategic plan. The result is that important decisions are made in a vacuum. Even basic operational questions such as what happens if one of the principals dies or becomes disabled may remain unaddressed, along with related financial issues such as the valuation and structuring of shareholder buyouts. The first step in developing a strategic plan is to take a critical look at the agency as it operates today and overlay on that model various scenarios that may play out over time. For instance, if an acquisition were to become available, is the agency prepared to pursue that acquisition? If not, what elements, including financial and operational, need to be in place for the agency to be viewed as a viable acquirer? One of our clients, as a result of losing out on a recent acquisition opportunity, realized that he had to be better prepared to respond in the future. His first step was to put into place lines of credit that would be available for any new opportunity. His second step was to establish a relationship with Harbor Capital as a resource to call on for deal structuring and due diligence support. As one would expect, strategic planning is a more straightforward process when there is one majority owner. The need for strategic planning becomes even more urgent in situations where there is more than one shareholder. I recall a case several years ago where the agency had four shareholders, with one individual having voting control. Each partner had a different hot button. One partner, who was effectively retired and was in the process of moving to a nearby city where he had just finished constructing his retirement house, needed his financial share of any sale. The controlling shareholder had been dragging his feet with regard to the possible sale and was being pressured by this partner to move the process along. The other two partners wanted the opportunity to continue on with the acquirer and were losing patience with the lack of a clear vision of the future. Unfortunately, the relationship among the partners deteriorated to the point that they were no longer speaking unless absolutely necessary. One of our first tasks after being brought in to represent the agency in a sale was to meet with the partners individually to identify their personal motivations and determine how to address those issues in any potential transaction. On some occasions, a bad past experience affects a principal’s ability to develop a clear vision of the viable options. For example, one of our clients had gone through an aborted selling process several years ago and formed a distorted view of the market from potential buyers who had presented offers that I would kindly characterize as “less than competitive.” When this agency became a client of Harbor Capital, one of the first concerns of the principals was that they did not want to be bought out with their own money. In this case, we explained to our clients that the reason that they had received those types of offers was that they were dealing with what we would characterize as “marginal buyers” who did not have the resources to make a competitive offer. The acquirers that Harbor Capital ultimately brought to the table were well qualified and able to complete the transaction with all or most of the purchase price paid up front. Agency principals should realize that strategic planning requires information that is not always available within the agency. From our perspective as consultants, the preparation of an agency appraisal is always a valuable first step. By its very nature, the appraisal process delves into many aspects of the agency’s operation. The appraisal serves multiple purposes. While establishing a realistic value for the agency, it also points out the positive and negative aspects of the agency, which are integral to the strategic planning process. This is one reason that the appraisal can be used as a tool in the strategic planning process by a qualified consultant. The appraisal also gives the consultant an understanding of the agency’s business model. The consultant can use that understanding to advise the client about strategic options, including the kinds of organizations that would be compatible in a future transaction. Harbor Capital has assisted clients in various ways depending on the client’s preference. Most typically we are called in to advise an agency owner who has been approached by a prospective buyer and needs help in responding to that overture. In other cases our client has taken a longer term view and has chosen to work with us as an advisor to build a strategy over a period of time. These latter clients want to have access to us as a sounding board in making decisions that affect the agency’s future. As a consulting organization, we believe that working with a client over a period of time gives us greater insight into the agency’s business model and helps us develop ways in which to help refine that business model where appropriate. As a result, we can help the agency capitalize on that business model and accelerate its growth. * |
|
|||||||||||||
| ||||||||||||||
