By Al Diamond, President, Agency Consulting Group, Inc.
The owners of independent insurance agencies are aging out. Record numbers of agents are perpetuating their businesses, both internally through Succession Planning and externally through sales of their agencies or books of business.
Some of the succession and perpetuation planning is justified and warranted while many agents are simply being put “out to pasture” because of the Agism in American society. What a loss!!! Take 20, 30, 40 or more years of experience and terminate it through a sale as surely as with a bullet!!
I’d like to offer a synopsis of when, why and how to best perpetuate the ownership of an agency or book of business without destroying the agency owner who has spent twenty, thirty, forty years or more building a business and an ego and business presence to match their longevity and expertise.
External perpetuation is the easy way out. When you can’t think of anyone to whom or anyway to convert your clients, employees and business relationships to someone else within your organization there are always local, regional or national firms that would delight in paying you what they believe your business is worth. Unfortunately, the impact to those clients, employees and business (and personal) relationships is often negative since the source of the money with which those companies are paying you are the “economies of scale” they will enjoy by changing the form, type and quality of service and employee relationship being presented to those people who have associated with you. Remember, your sales abilities may have caused your clients, employees and business relationships to come to you in the first place but they stayed with you because they liked and trusted YOUR knowledge, relationship and the way you do business. Internal succession planning still may subtly change a business but internal perpetuation is more likely to keep an agency looking and acting the way it was historically.
So, if you’re planning ahead for Succession or Perpetuation, the earlier you begin the process, the more likely you will be able to transition the agency internally.
On the other hand, those of you who are “Lone Rangers” (sole owner/producer with no successors in the agency nor do you particularly want to bring someone in or merge with someone to gain the benefits of internal succession) certainly may have distinct plans to retire – or they may have absolutely NO plans and permit God or Mother Nature or “fate” dictate when it’s time to “hang up your spurs”.
For the “Lone Rangers” among agency owners, setting up your agency for a beneficial sale may be the best way assure you will have enough value in your agency to support your retirement. And, if you are loathe to even think about the “R” word (Retirement), then having a current Agency Valuation is as critical as having an updated Will and is the best way for your family to know how much value they have in the agency when they find you slumped over your desk one day…
However, the purpose of this article is to view Succession and Perpetuation from a completely different angle. When the pundits, the consultants, the Companies, and all your friends ask you when you are going to retire, please respond with the question, WHY??
You have spent an entire career (making plenty of mistakes along the way) building the experience and the knowledge you know have. You are (hopefully) financially secure (or you shouldn’t be considering retirement OR agency sale) and no longer feel stressed to sell the next client. You can handle most any situation and are comfortable speaking to any prospect or client. You may not like it but you can also handle any irate situation. Why would you stop doing what you have spent a lifetime learning? Are you considering retirement because your friends, family, insurance companies, or trade press tell you that it’s time to retire or take it easy? TRUST YOUR GUT MORE THAN YOUR FRIENDS.
I’d like you to separate the concept of retirement from that of cashing out the value of your business.
For the most part, I’ve found that agency owners, like anyone else working in the agency, work for a “living”. We get paid for what we do based on the volume of revenue we generate and use that money to support and raise our families and (hopefully) set aside some funds for the future. What we have that our employees generally don’t have is an equity value of our business since its revenue flow will continue beyond our time. Whether we perpetuate internally or externally, we deserve that equity value as the retirement benefit of building a business and client base.
But who made the rule that cashing out the value of your business is equivalent to retiring?
I have a personal and close relationship with my maker and we have decided together that when he calls me — I will follow – and by his terms. But, until then, my job is to lead an “interesting” life, including continuing to do what interests me and is valued by others for as long as my knowledge and experience can help others. Whether you are a producing agent with 30 years of knowledge and experience in the sales and service of personal lines or an agency owner who has built or developed an organization around him (big or small), you would not be in the position you now occupy if you failed to provide coverage and security to clients and employees.
“BUT, AL, I HATE THE REPETITION AND AM BORED WITH THE SAME PROBLEMS AND THE SAME QUESTIONS, AD NAUSEUM!! MAYBE IT’S TIME FOR A CHANGE?”
Yes, but that change may be defined as you cashing out the value of your agency to allow younger people to start building their equity value in the business while you step back to what you find most interesting about the business, staying with the agency and taking more time off (which most of us don’t do). When I probe during our Succession/Perpetuation Plan consultations, the answer I most often get from agency owners who built their agency’s books of business (with a sigh and a far-away look in their eyes) is that if they could spend their time servicing their clients and building new client relationships without the hassle of management, they could go home every night at peace. Now, after 20, 30 or more years they have the confidence and knowledge base to feel comfortable in most any situation and they are no longer stressed by the need to make the next sale in order to put food on the table. Why not change roles and permit a new owner to take on the responsibilities that are so bothersome to you while you get a timed cash payout and continue to build and maintain your client relationships?
And there are agency owners who enjoy the management portion of the job but no longer enjoy the direct sales and service roles. Pairing these folks with the thousands of agents who are salespeople who hate the management side of the game is easy to do to transition roles.
Of course, if you have alternative goals for yourself, selling your ownership AND retiring is still available to you. And, once you are no longer the owner your compensation becomes linked solely to your production and client and revenue retention. The seed that I want to plant is that AGENCY SALE AND RETIREMENT ARE NOT NECESSARILY LINKED. Transferring ownership of an agency allows younger people to build equity in the business that you have evolved. In many cases retirement of the selling owner is necessary if the old owner cannot separate the ownership ego from the “helper” personality of a good insurance professional. However, a surprising number of cases have shown that, after 30 years, the selling owner is happier to get rid of the management responsibilities than he is the ownership role, itself.
My friend, above, has made it clear. If my health requires me to stop working, it’s his way to telling me that there are bigger priorities in my life than being an insurance agent and no one will ever carve “HE WAS A GREAT INSURANCE AGENT” on my stone. And, if I lose my “heart” for the game, I also need to retire as well as sell. The difference between a career and a life sentence is not the bars on the windows, it’s the imaginary chains you wear on your ankles that result in your feeling that you’re headed for the salt mine every time you go to the office.
But if I genuinely like the business… If I finally feel competent to any challenge that a client can put to me… If I recognize the difference between the boredom of repetition and hating my employees, clients and carriers… then I need to consider a change in ownership but not necessarily removing my ego completely and rocking my way to a eulogy for the next several years.
If you need either an Agency Valuation or a consultation to evolve Succession or Perpetuation Plans, don’t hesitate to call Al Diamond at Agency Consulting Group, Inc. (856 779 2430 al@agencyconsulting.com; www.agencyconsulting.com) and let’s talk.