I Know My Agency’s Value…Now What?

“Knowing the value of your agency reveals several opportunities to work ON your agency, not just IN the agency.”

In many cases agency owners wait far too long to learn the value of their agency. This delay is due to many factors including time, cost, fear, and the worst of all – they really don’t think that they need to know. The reality is knowing the value of your agency goes way beyond knowing just a number; it reveals several opportunities for agency owners to work on their business, not just in their business. 

Over the past eight months, I have completed over 50 agency valuations. Here are the top five most common actions that agency owners take once they learn what is driving the value of their agency and realize that they have the opportunity and power to maximize it.   

#5 Re-evaluate Carrier Strategy 

Concentration with one carrier creates risk inside an agency. If an agency’s lead carrier changes its compensation, appetite or rates, the impact to an agency can be significant. Many agency owners take a closer look at their carrier strategy as a result of going through the valuation process and explore alternative options. In addition, those agencies that are spread too thin across many carriers explore implementing a strategy to maximize their carrier relationships by focusing on areas that will allow them to place business with key carriers and put themselves in a position to be eligible for contingency. By focusing on a carrier strategy, an agency owner can reduce their risk over time, as well as relieve some pressure on their staff who may be struggling to keep up with too many carriers.    

#4 Put Producer and Employee Contracts in Place  

Having a high concentration of your book with a single producer or account manager creates risk. There is even more risk when there is not a contract in place with that employee. Agency owners can mitigate their risk in this area by putting in producer and employee contracts which define and protect trade secrets and also include non-compete and non-piracy language. While the risk of losing business when a person leaves your agency still exists, these contracts if written appropriately, can give the agency some recourse. They can also prevent an employee from attempting to take customers with them just by making clear what the cost of this action would be. Any agreements that are put in place after the employee’s hire date will require consideration for executing the agreement.  

#3 Compensation Plans  

The largest controllable expense inside an agency is payroll. An agency’s staff is its most valuable asset and biggest expense. Depending on the size of your agency, compensation and benefits will use over half of the agency’s resources. Understandably, this is an area that is most often adjusted in the valuation process. Many times, compensation plans are not tied to agency production causing the compensation to shift out of proportion. It is difficult for an agency to invest in marketing, technology or additional staff when its current compensation plans are not healthy. Implementing necessary compensation changes correctly requires time, great communication and a clearly defined pathway to success.  

#2  Reallocating Resources  

Part of the valuation process includes creating a pro forma financial statement that takes into consideration what the standard industry benchmarks are for the main categories of expenses inside an agency. An owner that is not already familiar with these benchmarks can easily see the areas where they are both over and under allocating resources. This is an incredibly valuable exercise and can uncover opportunities where reallocations can be considered to allow investment in the areas that will drive growth and/or efficiency in the agency.  

#1 Document a perpetuation plan  

The number one action taken by an agency owner after going through the valuation process is documenting a perpetuation plan or putting a buy-sell agreement in place. Not having a plan for your agency is the number one risk, especially for agencies that have a single owner past the age of retirement. 

Taking steps to formalize and document how the agency will be operated or sold should something happen to the current owner will minimize the risk and uncertainty that exists when a sudden life event occurs. Far too often, when an agency does not have a documented plan or agreement in place, confusion creates a delay and the agency is at risk of losing business while a plan is figured out, causing the agency value to decline.   

While it’s impossible to eliminate all risk inside an agency, those that make the time to understand the factors that are impacting the value of their agency have the power to take action and maximize their agency value. For more information visit www.agency-focus.com  



IIANC Member Benefit: Free Consultation with Carey Wallace

IIANC members have access to a FREE 30 minute consultation with agency valuation and perpetuation planning expert Carey Wallace. Take advantage of this great opportunity to discuss your agency’s needs and receive advice and resources focused on business planning, agency operations, compensation strategy and more! Learn More Here

About the author

Carey has worked in the insurance industry for the last 12 years and with entrepreneurial small businesses throughout her entire career. During that time, Carey has develop key business consulting services to ensure that agencies have the information and support needed to plan for their agency and successfully perpetuate to the next generation. She has worked with over 150 agencies to help them understand their agency's value and plan for their future. Carey is a nationally recognized speaker on both the impact of leveraging data in your agency & valuation and perpetuation planning. She has presented on these topics in over 20 states, several national conferences, carrier events, been interviewed on various industry podcasts and has published several articles on these subjects. Carey possesses extensive experience, knowledge, and passion in assisting independent insurance agents in making the best decisions based on data and insights specific to their agency.

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