For ambitious insurance agents, an early goal is to create their own insurance agency. This is a great way to obtain financial freedom, especially when you’re younger. Eventually, though, you’ll have an agency so valuable that others want to buy it — which leads to the big question: Do you even know how much your agency is worth?
If you don’t know, don’t worry, we’ve got you covered! Use the following guide to discover the best methods for calculating your value and getting the most out of a potential sale.
Why Do You Need To Know Your Insurance Agency’s Value?
Before we get into how to calculate what your agency is worth, it’s important to understand why you need to know the answer. On the most basic level, good business leaders need to have a solid grip on their company’s value at all times. That’s a no brainer.
But completing all of the parts that comprise due diligence when it comes to your business is a necessary task before creating any buy/sell agreement. Such an agreement helps to put shareholder minds at ease, especially because having a specific number is handy in case a wrench is thrown into the works by the unforeseen and sudden departure of a stakeholder.
Outside of a traditional sale, you may need to transfer ownership thanks to anything from a merger to a forcible restructuring of the organization. Knowing the overall value is information that will be critical to your investors – or your beneficiaries – if something happens to you.
Finally, knowing what your agency is worth may be the single best way to assess your performance in the market. Even if you don’t plan to sell now, you may have a certain number in mind where you’d want to cash out, and keeping an eye on your business valuation will help you do that.
1. The Asset-Based Approach to Value
One method of estimating how much your agency is worth is to subtract the market value of your assets from your liabilities. If you want to take this approach, you can begin by converting various assets and liabilities into current market values. Afterward, you can determine how much factors such as your established brand name add to what you are worth.
An alternative asset-based approach goes by the book…literally. You can look at your business balance sheets in order to better understand the numbers. However, since value changes over time, it’s worth noting these numbers will be most accurate immediately after the completion of a transaction.
2. The Market Approach to Value
If your agency is of sufficient size, you may want to take a market approach to valuation. Using this method, you calculate the value based on the information you have about agencies of comparable size.
For example, successful agencies go through mergers and acquisitions on a regular basis. With a little effort, you can discover how agencies similar to your own have been valued and what they have been sold for, which gives you an idea of your own ballpark worth.
This approach isn’t perfect because no two companies are exactly the same. Your own business may be worth a bit more or less than similar businesses. But this information gives you a valuable starting point for future financial negotiations.
3. The Income Approach to Value
The trickiest part of calculating the value for agencies is, as we have noted, that certain values may change over time. This is why the majority of agencies take a broader, income-based approach to calculating value.
One straightforward way to do this is to take how much your company earns in revenue per year and then multiply that number based on expected returns over time. This approach is relatively quick and easy, but it’s not always the most accurate because the method doesn’t take into account how exponential growth might affect what your business is worth.
A more involved but accurate method is to calculate what your future earnings are likely to be based on your performance in previous years. With this information, you can roughly calculate how much money your business is likely to make in the future, and you can then use the rate of return to calculate an approximate current value for your company. Potential buyers often appreciate this approach because, if done right, it gives a more realistic valuation, meaning they are less likely to pay more for your business than what it is actually worth.
Boosting Your Agency’s Overall Value
If you’re reading this, chances are you are interested in eventually selling your agency. If you’re not interested in an immediate sale, you should focus now on ways to boost how much your business is worth.
For example, client retention is the cornerstone of any successful career in insurance. Focus on retention, but don’t be afraid to use referral programs and other special reward incentives to encourage clients to bring you more customers.
Beyond that, make sure you focus on different marketing approaches. Traditionally, social media marketing gives you the best return on your investment.
Finally, and above all else, focus on providing top-notch customer service. The blunt truth is that potential customers can get insurance offers at the click of a button from countless websites. What will bring them to you and keep them with you is the kind of attentive and personalized customer service they can’t get anywhere else.
Sell Your Insurance Agency Today!
Now you know how to calculate what your agency is worth. But when the time comes, do you know who will provide the greatest value for your business?
At Confie, we’re always looking to acquire successful agencies like yours. To take your first step on this bold new journey, feel free to contact us online or give us a call at 714-252-2500!
