So, you’re thinking about the possibilities of owning an insurance agency. Before you make the final decision gather as much information on the prospective purchase and leave nothing to chance. Take advantage of due diligence and hire a professional – it’s a lawful discovery process for collecting information about a company and its owner. Determining the worthiness of the insurance agency is vital to your future business obligations.
Generally, the first thing that catches your eye is the price – it’s affordable. If the asking price is lower than you anticipated, proceed with caution. There may be underlying conditions responsible for the low market price. You need to know how the price was established. If an independent appraiser generated the report, ask for a copy of the report, along with the supporting documents. Be sure an industry expert and a legal representative review all of the information.
Why is the Business for Sale?
It’s important to find out why the agency is for sale. If the agency is well established, the owner may be interested in retiring and looking to fund another business in a new location. There’s another option. Since most independent agencies are owner dependent business models, the owner may have passed away, and the family is looking to dissolve the organization.
Take the time to evaluate both situations, be sure there are no hidden costs or risks of acquiring outstanding legal actions or creditor debts. Starting a business is tough – starting one with a sizable deficit is a good reason not to make an offer to purchase.
Industry Branding and Reputation
All businesses go through rough phases. Surviving agencies have a clear trail of growth aligned with profit accomplished by building a solid reputation. If the agency has failed to satisfy its clientele for whatever reason – it’s reputation may be tarnished.
It’s not impossible to turn things around financially, and marketing campaigns can help to recover from a bad reputation or poor management. Although it may not be easy, promoting and introducing the new management can be effective – time-consuming and costly. Can you afford it? If not – this is not the agency to buy.
Location, Location, Location
Are there business obligations tied to a lease or property? Ask your legal advisor to check the terms and conditions. If the previous agency closed, liabilities could be expensive. Make it a point to meet the landlord and walk the premises. Be aware of the potential obligations – past due rent or property damages.
Get a survey of the real estate and the surrounding environments. A great business in the wrong neighborhood is just a recipe for disaster. Even if it passes all of the checkpoints, you need a location that attracts your customer, whether it’s located in a dense residential area or in the middle of bustling commerce. If it doesn’t match the business plan and your core values – it may not be the agency to buy.
Deal Negotiations
There’s a difference in the cost of buying an insurance agency operating from a physical structure with staff and daily obligations, compared to buying the book of business. The newly purchased agency needs to have the resources for continuing operations during and after the purchase transaction. The lending sources should be in place and the available cash on hand.
If you are working with specialized lenders, they have their own set of requirements. Take advantage of the industry contacts and shared resources for completing the transaction process in a reasonable time. Even more valuable to a buyer is their knowledge of the agency being purchased. The information allows you to make the right investment based on good business practices, making the decision to buy or not to buy with no regrets.
The good news, by working with an experienced industry professional they will help search for a qualified purchase. Keep in mind; the business analysis allows you to see beneath the surface revealing potential conflicts. The results of the findings can predict and decrypt the possibilities of future profits or loss. No matter how much you want to buy this insurance agency, if the numbers don’t fit – don’t buy it.
