This implies the transition of ownership to a child (or children), employee relative(s), producers or other employees or the acquisition of new ‘blood’ to eventually become the owner(s) successor instead of having to sell the agency to another organization. The reasons to perpetuate internally are myriad:

1. Tradition and/or Ego – you want the family name to continue as an insurance organization in the community that you have served for one or many generations.

2. Deserving successors – your staff has been loyal to you and are well prepared to take over the leadership of the agency.

3. Deserving children or other family members – They have been raised in the agency and they may carry on your culture or alter it to mold the business to their personalities. But they know the business and deserve to be the next generation.

4. Undeserving family members and/or staff – You’re afraid that the family members and/or staff are not as professional as you would have liked them to be and, if the agency were taken over by an outsider, they may not survive the transition.

5. A great organization lacking a successor-leader – you have been the strong patriarchal leader without anyone with your capabilities that could stand up to your personality. Now that you are ready to transition, you are seeking someone as strong as you to come into the agency and become its next principal to protect your clients and employees and guarantee the proper value transfer for your retirement.

6. You will have a good idea of the value of the agency (or your need of value) prior to triggering the perpetuation plan. The successful Succession Plan will assure you of the ability of the successor(s) to sponsor the required value to you – to allow for sufficient cashflow to pay you and to continue to increase the value of the agency for their own future.

A Succession Plan attacks the appropriate item(s) above for your agency. It addresses the fact that the professionalism and loyalty expressed by the potential successors in the past allowed them to enjoy a successful career to date. The additional duties and responsibilities that you will now place on the prospective next owners of the agency will determine whether they can Step Up to the next level and continue their productive efforts in service, production and administration and learn all that you do to also become managers and leaders. Not all the potential owners will necessarily succeed in the transition to ownership.

That doesn’t mean that they are not valuable, only that their value is more as an employee than as a manager/owner. The successors that succeed in the Succession Plan (as little as one year and as long as five years) will gain further management experience and will simultaneously convince you of their capabilities before your ownership transfer is fully triggered.

Components of the Succession Plan

Over the period of the Succession Plan (different in each agency), the successor(s) will be given management responsibilities including both authority and accountability for designated management tasks. If transitioning from one owner to multiple owners, these responsibilities, all being accomplished currently by a single owner with administrative help, the new management roles will be defined by the needed management tasks and by the personalities of the participants.

If coincidental with Strategic Planning, the first year will have the successor(s) responsible for revenue generation and subsequent years will transfer budget responsibilities to be sure that the growth of the agency isn’t accompanied by expenses in excess of growth.

The transition of the roles from the current owner to the successor(s) comes with a set of challenges for the current owner, as well. Many owners have built a self-reliance that will be difficult to delegate. The delegation is critical to the eventual successful transition of ownership. If the senior owner cannot manage the delegation of his tasks he will never be able to turn over the full responsibility for those jobs and feel comfortable that they will be managed just as well (if not better) than (s)he could do alone.

Each year of the transition the roles will be further developed and more responsibility will be given from the senior owner to the successors. There may be management bonuses or a stepped acquisition of stock based on the success of the successors in their management goals each year (at current FMV of the stock as a Going Concern or at discounted rates, based on the needs and desires of the senior owner).

By the time the senior owner steps out of ownership completely or out of majority ownership the successors are quite comfortable in their new roles and form a new ownership, whether individual or as a team for the agency. The transition becomes transparent to the staff, clients and carriers since it is slow and methodical (over years) and the senior owner remains in place to monitor and manage the transition process, itself.

One important key to the Succession Plan is that the senior owner may delegate the authority and accountability for management tasks within the organization, but (s) he cannot delegate the responsibility as an owner. He will lower his work effort in the delegated functions, but that reduction in work effort is replaced by active management to be certain that nothing falls through the cracks and the work effort that the owner has done in the past is successfully being accomplished by the successors during the transition period.