By Keith Payne Licensed Business Broker, Independent Insurance Specialist, and Manuel Santana, Certified Business Appraiser
As an independent insurance agency owner contemplating an exit strategy, whether through a complete sale or partial transfer, careful planning is crucial to maximize your agency’s value and ensure a smooth transition. Recent changes to the Small Business Administration (SBA) loan program have expanded options for agency owners, making it easier to facilitate partial sales.
SBA Loan Program Updates
The SBA has recently revised its loan program to include partial sales of businesses, opening new possibilities for insurance agency owners. According to the U.S. Small Business Administration’s official website, the 7(a) Loan Program now allows for “changes of ownership (complete or partial)” as an eligible use of funds. [1]
This change provides more flexibility for agency owners looking to transition from their business or bring in new partners gradually.
Timing Your Exit
The optimal moment to sell is when your agency thrives and demonstrates growth potential. Consider these factors when timing your exit:
- 1. Current market conditions
- 2. Your personal and professional goals
- 3. The overall health and performance of your agency
- 4. Industry trends and forecasts
Financial Preparation
Clean, accurate financial records are essential when selling your agency. Buyers and lenders will scrutinize your financial statements to assess the agency’s performance and potential.
Key steps:
- 1. Prepare at least three years of detailed financial statements
- 2. Ensure books are up-to-date and accurately reflect your agency’s position
- 3. Consider a professional review or audit of your financials
Still, it is not just about the numbers. Additional growth/risk drivers include:
Operational Efficiency and Technology Adoption
Streamlined operations and modern technology make your agency more attractive to buyers. Well-documented processes and up-to-date systems demonstrate that the business can run smoothly during and after a transition.
Client Relationships and Retention
A stable client base with high retention rates is a valuable asset. Strong client relationships can significantly boost your agency’s value.
Business Diversification and Growth Potential
A diverse book of business across multiple carriers and insurance lines, coupled with clear opportunities for future growth, can make your agency more appealing to potential buyers.
Valuation Expertise and Professional Assistance
Work with professionals who understand the unique valuation methods for independent insurance agencies. Expert valuation can help you assess the true worth of your agency’s book of business, client retention rates, and carrier relationships.
Financing Options
The SBA 7(a) loan program offers attractive terms for buyers, which can make your agency more marketable. According to Oak Street Funding, non-SBA financing options are also available, providing flexibility based on future revenue projections. [2]
Planning ahead
Preparing your independent insurance agency for sale requires careful planning and strategic decision-making. The recent inclusion of partial sales in the SBA loan program offers new opportunities for agency owners considering a gradual exit or partnership transition.
Remember that every agency is unique, and the sale process should be tailored to your specific circumstances and goals. Don’t hesitate to seek expert advice if you’re considering transferring your agency, including having a reliable business valuation. Our team maximizes value and ensures smooth transitions for independent insurance agency owners. Contact us today for a confidential consultation to explore your options and learn how we can help you achieve your goals in selling your independent insurance agency.
Additional resources:
[1] https://www.sba.gov/funding-programs/loans/7a-loans
[2] https://www.oakstreetfunding.com/insurance-agent
KEITH PAYNE
BUSINESS BROKER
DIRECT NUMBER: 612-730-1030
EMAIL: kpayne@sunbeltmidwest.com
OFFICE ADDRESS
1300 Godward St. NE, Suite 6000
Minneapolis, MN 55413
About Sunbelt Business Advisors of Minnesota
The Sunbelt Business Advisors Minneapolis office is the largest office in the Sunbelt network with a staff of over 50 advisors, associates, analysts, and business development representatives. In 2021 the firm was recognized by the International Business Brokers Association as the #1 firm in the country and the first firm in history to sweep all three first-in class awards. Sunbelt provides services to business owners interested in selling their businesses, assistance with merger and acquisition activities, complimentary business value assessments, and advice to business owners seeking to maximize their life’s work when they exit. The firm provides business brokerage and mergers & acquisitions services for companies with revenues from $500,000 to $150 million. More information is available at www.sunbeltmidwest.com (<Under $5 million revenue) and www.tnma.com ($5 – $150 million in revenue).
