How Much Is an Insurance Book of Business Worth
Usually, a small transaction – those of less than $500,000 in commissions – does not require a fair stock market valuation. Instead, a value opinion essentially includes preparing the pro forma income statement in the general ledger, a basic description, and calculating the value using three valuation methods. Costs are typically between $2,500 and $4,000, compared to a fair market valuation of $4,000 to $6,000. Once you`ve found a fair selling price for your business, it`s time to decide how you want to get paid. As usual, there are several options – three, to be exact – and several factors to consider. Let`s look at the three payment methods you can choose: Usually, business books worth half a million dollars or less don`t need an appraisal that would cost around $5,000 to $7,000. Are you buying an insurance agency worth less than $500,000? You need something that is the equivalent, the book Opinion of Value, which covers the income statement, a description and value figures using valuation best practices called valuation methods (see below). Expect to pay at least $2,500 and up to $4,000. One form of evaluation is not superior to another. You simply cover a small insurance agency compared to a larger one.
3. The present value of future earnings approach examines the earning potential of the book. The last way to do it is deserved. This significantly relieves the buyer of the risk, because if the book does not bring in money, the buyer does not pay. But if this business grows and stays, it deserves more. Typically, the down payment is made in the first year, and then monthly, quarterly, or annual payments are made to settle the rest of the insurance book. For example, look at a hypothetical registry that is $250,000 in commissions in the personal and commercial fields. Assume a high retention rate of 95%. There are basically three ways to get paid when you sell your business book: More importantly, make sure you sell the lines of insurance that the insurance agency needs to maintain its business book. For example, if you only have a P&C license and many book customers have life insurance, not only do you lose some of the value of what you bought, but you also risk losing those customers` P&C businesses.
There are usually two main methods for calculating the value of an agency/ledger. (1) an income multiplier or (2) a profit multiplier (also known as “EBITDA”)[1]. Like the composite rating of different insurance products, income and profit multipliers can be converted into one function of the other. The first took place between the middle and the end of 2017. We received a very difficult call from one of our agents who found out he had terminal cancer. He had 24 months to live and asked us if we were considering buying his book. That doesn`t mean your business has to be flawless to make a sale. Any smart buyer understands that there is some risk in any type of acquisition of this size, but if you`re trying to sell your agency, it`s important to do your best and present your business in the most attractive light. Personnel costs. A producer is needed to manage accounts that total only $150,000 of the book. The producer is paid with 30% of the commission, or $50,000. For service costs, there would probably be half a CSR for commercial lines and half a CSR for personal lines, probably $30,000 for commercial lines, $15,000 for personal lines and $5,000 for accounting and administrative assistance.
The buyer has some management time, so $10,000 is allocated to this effort. The total cost of compensation is $110,000. One of the most critical, if not THE most critical, questions that buyers and sellers face is how to rate the agency (or business book if you only buy the book). An earnings multiple, also known as EBITDA, is a valuation method in which the multiplier is based on the operating cash flow (or revenue) of the agency or general ledger. This method is often used when purchasing an entire transaction, a functional component/department of a company (i.e. the entire personal portfolio of another agency) or a larger business book that involves significant cost and/or complexity. For more than 35 years, AEIS has served the San Francisco Bay Area and beyond with customized business solutions and unparalleled customer support. We are an independent local family business with qualified and experienced employees who are committed to providing you, your employees and your customers with the best options. You want to sell your business to someone who takes good care of your customers – not just let them get by. If a buyer gives the seller 30% off, that`s $150,000.
Typical down payments are 20-50% for a business book. Then the buyer owes another $350,000. The balance is usually on an earn-out. The amount still due, which is 70% of the money at 2 times or 150%, will be converted into a percentage for the next three years. In this sale, the selling price of the general ledger is expected to be between $250,000 and $500,000. Two factors influence the final sale price: the desirability of the customer and the extent of competition for the company. Some factors that affect customer desirability include: When a business owner has a valuation of their business done, the valuation is usually based on valuation The second most important factor to consider when considering selling your insurance business is the actual value of your ledger. We`ll go into more detail later, but for now, here`s the most important thing to know: Yes, it`s not always easy to accurately estimate the true value of your business and get a good deal, but Sunbelt Atlanta can help! Our goal is to make business sales smooth and easy – we`ve even created a handy online tool to help you start estimating the value of your insurance business! We paid him in cash for his book, and he died a few months later. He was only 57 years old.
Here, your book can be rated up to 2.5 times – or even more if your book includes some of the variables we`ll discuss in the next section. Not all books or agencies have this kind of profit. Normally, profitability today is in the range of 15 to 25%. If an agency transfers a ledger to an existing agency instead of leaving it as a standalone business, there is usually a much greater chance of achieving this type of profitability. Most buyers wouldn`t allow a book to present itself as a separate office unless there was $1 million in commissions. There are many reasons why an agent may decide to close the doors of an insurance agency, having a family is one of them. So we`re not saying that a seemingly living young insurance agent can`t change careers for reasons other than failure, but you need to understand why they give up and see how much they`ve earned. Now, you can also be a better salesperson, so keep things in perspective when shopping for an agency! Whether you want to retire soon or work for another five years, a proactive approach to planning your exit strategy gives you full control over the direction of your business, your future, and your legacy. Work with AEIS to create a personalized plan tailored to your personal and business needs, as well as those of your clients. Calculating the total value of your business is hard work. There are so many factors to consider, and it`s easy to feel overwhelmed when trying to find a reasonable price for your insurance agency. We were there! These three methods are effective ways to make a reasonable profit by selling your business.
Ultimately, it depends on the level of risk you want to take: Do you want to receive a lump sum in advance and leave safely? Or would you rather take a little more risk to make more money in the long run? The choice is yours! And either way, Sunbelt Atlanta is here to help. Finding the right partner to take care of your customers and build on your efforts is hard work. When it comes to your exit strategy and selling your insurance book, you can choose different ways. Work with us to explore the option that best suits your situation. Ask about the agency and its best practices to see if it was responsible for the agency`s failure if it was. .