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Buying an Insurance Associated Agency

Updated on March 9, 2012

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Factors to Consider when Buying an Insurance Agency

If you are in the process of buying an insurance agency there are several factors to bear in mind. This is a big step and a huge investment, so ensure the transaction is preceded and followed through with due diligence. It is advisable that you seek the assistance of an expert business intermediary that will be better able to navigate the procedures associated with the buying process. Even with an expert in charge of the purchasing transaction there are several key things that you should get familiar with.

Finding Insurance Agencies up for Sale

If you have not already decided on an insurance agency you would like to buy, then surfing the internet will produce some good options. you can find a reputable agency advertising a range of high quality insurance agencies that are up for sale. Once you have decided on the insurance agency you would like to acquire then you will need to conduct a thorough research before sealing the deal. Here are some important factors you will need to inform yourself about before buying an insurance agency.

Do a Cash Flow Analysis

Conduct a review of the company’s records of new policies, their commissions, renewals, cross sells, annuities and all other revenue generating areas of the agency.

Familiarize yourself with the reoccurring expenses such as rent, employee costs, utilities, committed advertising expenses, and toll free numbers. Advertising expenses could be in effect for an additional year and you will need to know this. You may need to revamp the agency’s expenditure portfolio and make alterations where necessary to make the company more profitable. Your cash flow analysis should span at least 12 months but if the insurance agency is an established one a more thorough analysis spanning multiple years should be done.

Access Financing

If you are unable to do self-financing using current assets there are other options you may want to consider.

Lending agencies that offer financing for buying an insurance agency have reviewed their lending guidelines due to the current economic climate and recent industry events. It is advisable for you to conduct an internet search for companies that specialize in giving loans for purchasing an insurance agency. It is best to check out several loan companies and find out about their services and charge fees plus other vital information relating to a loan agreement.

There are several all-state financing agencies but do your checks and go with the one that will work best for you. Your community bank is also another option to consider for financing when you decide on buying an insurance agency. It may take a bit of convincing on your part if you can show them the benefits in relation to the cash flow that your business will generate. Find out if the bank will do Small Business Administration (SBA) guaranteed financing.

Still another option is finding out if the current owner of the insurance agency is willing to stay on during the transition period and if they will hold a note subordinated to the bank. Before going to the bank, consider your personal assets and whether or not you are willing to put them up as collateral for securing the loan.

Is the Agency in an Ideal Location

Review the location of the agency and the possibility of relocating to optimize business opportunities. Is the current location a high traffic area and is it visible enough to attract potential customers? Location is an important factor that affects the success of any business but you should also weigh the impact of relocating. You may lose current customers and affect your retention rates but there is also the possibility of significantly increasing your client base in a more ideal location.

Find out about the lease agreement on the present location. If it expires in the near future consult with the landlord to ensure that there will not be a sudden and dramatic increase in the monthly fees during the next lease negotiations.

The Agency’s Existing Advertising Campaign

It is important that you understand the advertising commitments that the insurance agency will have to honor when you become the new owner. You will need to factor in the costs of any yellow page or bill board advertising campaigns that may be in effect for a certain period of time. Assess existing phone numbers, website and /or emails that are advertised as they are an asset that comes with your purchase. Ensure that you will be able to keep these contact methods when you acquire the agency.

In analyzing the benefits of the existing market there are other advertising expenses you may need to factor in. The costs associated with updating some websites and toll free numbers can be expensive. You may need to update these medium with the new owner’s information or redirect clients and potential clients to a website or a telephone system that you may already have in place.

Company Access

When you decide to buy an insurance agency you will need to find out the current insurance carriers that the owner writes with, and whether you have an appointment with these business interests. If this was not arranged then ensure that you check the underwriting requirements for these companies and make an appointment with them following the sale of the insurance agency. If you fail to get an appointment with these companies you will need to rewrite the existing clients under a different insurance company and here you face the risk of losing those clients. Any existing appointments you may have with insurance carriers that your newly acquired insurance agency does not already carry will enhance the agency’s insurance carrier offerings.

Assess the Management System

Antoher measure to consider implementing when you decide on buying an insurance agency, is conducting a review of the exisiting managerial practices. How are customer records maintained, and will the present management system remain in operation after you acquire the agency? In the event that you would prefer to install your own managerial system, will the records of the existing clients be compatible with your system? You may want to consider using software applications that are available to assist with the transfer of records between systems.

Use Experts for Technical Details

All these agency valuation and sale negotiation processes are aspects of the transaction that are technical, and best left in the capable hands of an expert business intermediary when buying an insurance agency.


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