How much to pay
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soupdawg1993
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How much to pay
I have been fortunate to come across an agent (ia) who is ready to retire and am curious as to what is an average or typical amount to offer or to pay for his business. Thanks in advance. Has both standard and non standard carriers.
Depends on what the going rate is in the area and how much is commercial vs personal. I've purchased two - all commercial - recently with no money down - payment based on renewal commission. I paid one time the commission over 2 years. Keep in mind when structuring your deal that you need tail coverage for the existing book.
Buying a Book of Business
Soupdawg,
I love those books whereby the owner is retiring. Typically, for the seller, it is detrimental taxwise to receive the entire value in upfront dollars. Therefore, you can structure a payout that works for him during retirement and could allow you a book that is immediately accretive to your bottom line.
Non-standard books vary depending upon the carrier, rates of commisson being paid, and historical retention. Obviously, the worst case scenario non-std. book of business for the "seller" would be valued at 50%-75% of annual commissions.
As stated by Cathy, standard and preferred lines should bring an increased price depending upon retention and the lines of business, agency length of time in business, whether you are assuming his location or just moving the book, taking employees or not, assuming any ongoing liabilities such as phones, copies, or other leases, etc. etc.
Lastly the same idea applies to commercial books.
Personally, I would perform an extensive due diligence on every book individually utilizing all carrier reports available, paper and online. Request written authority to verbally speak to any company dept. regarding his books.
Be sure the producer agreement clauses requiring the carrier's notification and agreement of your purchase are satisfied as well.
Then, structure the purchase and potentially increase the value by extending the payout time on the best retention books. The I.R.S. requires that you pay interest on any outstanding balance but that can be "backed" into.
Finally, one more important point, be sure to contact your CPA for the optimal allocation of the purchase price ( assuming an asset only purchase) such as allocating the proper percentage of the purchase price to the customer list, book of business, F&F, Goodwill and Covenant Not to Compete.
As the buyer, you gain significant tax advantages via differing lengths of time to depreciate each
asset versus just allocating the entire price to the book of business.
This has been very helpful to me in past acquisitions. Your CPA should know what is best for your corporate structure.
Hope this helps.
Regards,
Hutchman
I love those books whereby the owner is retiring. Typically, for the seller, it is detrimental taxwise to receive the entire value in upfront dollars. Therefore, you can structure a payout that works for him during retirement and could allow you a book that is immediately accretive to your bottom line.
Non-standard books vary depending upon the carrier, rates of commisson being paid, and historical retention. Obviously, the worst case scenario non-std. book of business for the "seller" would be valued at 50%-75% of annual commissions.
As stated by Cathy, standard and preferred lines should bring an increased price depending upon retention and the lines of business, agency length of time in business, whether you are assuming his location or just moving the book, taking employees or not, assuming any ongoing liabilities such as phones, copies, or other leases, etc. etc.
Lastly the same idea applies to commercial books.
Personally, I would perform an extensive due diligence on every book individually utilizing all carrier reports available, paper and online. Request written authority to verbally speak to any company dept. regarding his books.
Be sure the producer agreement clauses requiring the carrier's notification and agreement of your purchase are satisfied as well.
Then, structure the purchase and potentially increase the value by extending the payout time on the best retention books. The I.R.S. requires that you pay interest on any outstanding balance but that can be "backed" into.
Finally, one more important point, be sure to contact your CPA for the optimal allocation of the purchase price ( assuming an asset only purchase) such as allocating the proper percentage of the purchase price to the customer list, book of business, F&F, Goodwill and Covenant Not to Compete.
As the buyer, you gain significant tax advantages via differing lengths of time to depreciate each
asset versus just allocating the entire price to the book of business.This has been very helpful to me in past acquisitions. Your CPA should know what is best for your corporate structure.
Hope this helps.
Regards,
Hutchman
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soupdawg1993
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92builder
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This is a great column in a recent Agent & Broker (which I would subscribe to TODAY if I were you) magazine which talks about agency valuations. There are a couple things in here I didn't think about either.
http://www.agentandbroker.com/aabweb/in ... 679E7A084C
http://www.agentandbroker.com/aabweb/in ... 679E7A084C
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independent guy
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I read that magazine every time I get it, and pass it around the office. There are a lot of very valuable articles in there!92builder wrote:This is a great column in a recent Agent & Broker (which I would subscribe to TODAY if I were you) magazine which talks about agency valuations. There are a couple things in here I didn't think about either.
http://www.agentandbroker.com/aabweb/in ... 679E7A084C
Due Diligence Items
SoupDawg,
Here are some items to look at during an agency due diligence, but by no means, is it a complete list.
1. Commisson statements for 12-24 months for each carrier AND a copy of the actual deposited commission check if not direct deposited.
2. Bank statements for each of the months demonstrating the deposit of each company commission.
3. Producer agreements verifying your acquisition ability and requirements.
4. Federal Tax Returns for past 2-3 years with gross revenues tying to the gross income reported on Profit and Loss Statements. If not, why not?
5. Profit and Loss Statements for 2 years. Balance Sheets.
6. E & O policies and loss history.
7. All available retention information for each book. (most of the time, you will need to apply your own formula to each book to get a reasonable estimate of retention. Do not rely upon some number provided as everyone's formula varies in this area)
8. Customer list
9. Agency management system
10. Accounting system if separate
11. Speak to CSR's / producers, employees, etc.
12. Advertising
13. If Corp., verify in writing the authority of owner, as shareholder and director, that he/she has authority from the board to sell the corporate assets.
14. Any other pertinent record.
Rarely does it make any sense to buy the Corp. Asset purchase is the safest method. Run a Dunn and Bradstreet report. Personal credit report on owner would help. I would verify ANY outstanding liabilities to insure you do not get stuck with them. Balance sheet should indicate these but do not trust anyone's Excel reports. I can make them pretty too!
I may have omitted important items. Just typed away...
Good Luck!
Hutch
Here are some items to look at during an agency due diligence, but by no means, is it a complete list.
1. Commisson statements for 12-24 months for each carrier AND a copy of the actual deposited commission check if not direct deposited.
2. Bank statements for each of the months demonstrating the deposit of each company commission.
3. Producer agreements verifying your acquisition ability and requirements.
4. Federal Tax Returns for past 2-3 years with gross revenues tying to the gross income reported on Profit and Loss Statements. If not, why not?
5. Profit and Loss Statements for 2 years. Balance Sheets.
6. E & O policies and loss history.
7. All available retention information for each book. (most of the time, you will need to apply your own formula to each book to get a reasonable estimate of retention. Do not rely upon some number provided as everyone's formula varies in this area)
8. Customer list
9. Agency management system
10. Accounting system if separate
11. Speak to CSR's / producers, employees, etc.
12. Advertising
13. If Corp., verify in writing the authority of owner, as shareholder and director, that he/she has authority from the board to sell the corporate assets.
14. Any other pertinent record.
Rarely does it make any sense to buy the Corp. Asset purchase is the safest method. Run a Dunn and Bradstreet report. Personal credit report on owner would help. I would verify ANY outstanding liabilities to insure you do not get stuck with them. Balance sheet should indicate these but do not trust anyone's Excel reports. I can make them pretty too!
I may have omitted important items. Just typed away...
Good Luck!
Hutch
PURCHASE
SAND-DAWG- HUTCH GAVE SOME GREAT INFO. IF IT IS A CORP, PROCEED WITH SOME CAUTION AS WITH STOCK SALES, THERE CAN BE MAJOR TAX ISSUES. I READ SOME OF THE POSTING ON VALUATION AND I THINK INFO GIVEN MIGHT BE A BIT LIGHT FOR YOUR STATE. I HAVE BOUGHT A FEW AGENCIES AND LIVE IN YOUR STATE SO SHOOT ME A PRIVATE MESSAGE IF I CAN HELP. GOOD LUCK!