At the “suggestion” of my wife, we recently started looking for a new house. Like most other home shoppers, I wound up on Zillow.com. If you have never used it, Zillow is a great website loaded with information and resources to aid in the process of buying a new home. While shopping for a home is exciting and fun, my experience drove home a few points that relate to selling an insurance agency.
Of the homes that we looked at, those that received more of our attention were generally the ones that had a better presentation. The listings included many quality photos with good lighting, room staging, and shots from various angles. They included a street map and floor plan schematics so buyers could see the square footage of individual rooms. The write-up highlighted upgrades and features that were unique to the property. The ad also discussed the costs associated with the property, such as taxes, HOA fees, utilities, and mortgage rates. The best presentations didn’t even require a visit to the home for us to make a decision.
For most properties that we responded to online for more information, we received an email, text, or phone call relatively quickly from an agent who then scheduled a showing. On one property though, I didn’t get a call back for two days. The initial call was awkward as the other party asked me how serious I was about the house because her kids were coming home that weekend, and she wouldn’t be able to show the house for a week. I finally figured out that I was speaking to the homeowner and not an agent. We finished the call with her saying she would call me the following week…which never happened. As it worked out, we found another house and went under contract before the week was up anyways so she missed an opportunity. In her defense, she had been trying to sell the house for a year and a half (per the ad) so she was likely burned out on having to show it.
After making an offer on a particular home, a few inaccurate and omitted details came to light. The advertisement on the home listed the wrong square footage, which caused us to make a higher offer based on an assumed price per square foot. It also neglected to mention that the roof was 17 years old and needed to be replaced, the AC was broken and the house had some wood rot that needed repair. After nearly two weeks and spending over $800 on inspections, we were faced with the dilemma of having to renegotiate or walk away – which is the same position the sellers were in.
These same attributes matter when selling an insurance agency. Buyers cannot reasonably determine if the agency is a good fit, or what to pay, without receiving a detailed presentation on an opportunity. We call it the confidential business summary or a pitch book. As I’ve noted before, a good pitch book makes a world of difference for the seller. In addition to allowing a deal to move forward more quickly by providing a buyer with relevant information, it also permits the seller to obtain multiple, competitive offers when the opportunity is properly marketed.
While most agency owners are skilled salesman/woman, it’s a different ball game when you’re talking about selling your own business. First, you are already likely overburdened just in running the business – like the homeowner who was juggling family – so it could be challenging to find the time to communicate with buyer prospects. Second, you have to maintain confidentiality while attempting to solicit interest from buyers so that your employees and customers don’t find out the business is for sale. Third, you have to ascertain whether or not a buyer is qualified to buy the agency, so you don’t waste time dealing with tire kickers. Fourth, you have to collect and send information buyers request and then answer follow-up questions. Fifth, you have to negotiate offers and manage a deal so you can actually get to the closing table. Did I mention that you still have to run the business while juggling a sale?
This brings me to my last point that the accuracy and detail of information provided is critical. An offer based on inaccurate or omitted information opens the door for renegotiations. Renegotiations are always to the detriment of the seller since they are typically emotionally/psychologically committed to the deal after weeks of the buyer’s due diligence process. If you have never been through the process of selling a business, it can be difficult to determine how and what to present to a buyer to avoid this problem. For us, we run our clients through pre-deal due diligence to help minimize this risk, but we also have the experience of knowing what to look for.
I’ve made these arguments before in other blog posts, but my home buying experience reinforced my opinion of the value of using a professional intermediary. I’m confident that our clients would agree too and a number of them tried selling their agencies on their own before calling us.
P.S. No, we were not considering buying the house in the title image.
Posted by: Michael Mensch, CBI, M&AMI and Managing Partner