5 Questions to Ask When Preparing for Perpetuation

5 Questions to Ask When Preparing for Perpetuation

Planning your insurance agency perpetuation may seem like an insurmountable task. But, when broken down into manageable pieces, it can be tackled like any major project. Throughout the years, we’ve created a number of resources to help owners map out their succession plan. When compiled, we found five simple questions can put agency transition on the road to success.

  1. Do I perpetuate internally or externally?

There’s a reason this is question number one. Your answer will determine what path you’ll take and how to prepare your agency for it. Weigh what you’re looking for in succession. Internal perpetuation usually means more brand consistency and control, but external generally means a higher cash gain.

  1. Who will take over?

Once you know if you’re looking inside or outside of your agency, think about who will be taking the reigns. If internally, it may be a family member or employee. If external, it could be a local agency, larger regional agency, or even a bank. Decide what’s best for your business. Ideally, you should start planning your perpetuation 5-10 years out so you have time to work with your successor on the next three questions.

Read more on the pros and cons of perpetuating internally and externally

  1. What’s my agency worth?

Determining agency value can be tricky. To help, ensure you have a financial reporting system in place early on. Most agencies use their management system to track money in and out. Use reporting features to set up recurring reports to give you a clear picture of where you stand year to year. This data will inform you on your agency’s real value. That’s a great bargaining chip when negotiating with potentials buyers.

  1. What’s my timeline?

If you’re asking when you should start planning, the answer is now. As mentioned, the nuts and bolts of perpetuation should be put into motion 5-10 years out, but it’s never too soon to draft a timeline. In your timeline, map out when you plan to select a successor, length of the transition period, and your expected turnover month and year. Knowing these dates ahead will help you prepare your staff, your successor, and yourself for the transition.

  1. What’s my post-succession role?

Everyone is different when it comes to how much they’d like to be involved post-transition. You can stay on with a more active role as an advisor or board member, or you can choose to take a more passive position jumping in here and there as needed. If full retirement is more up your alley, you can pass off your agency and hit the links. Just be sure you’re upfront with your successor on how you’d like to be involved.

Here’s what to do – and not to do – when planning succession

BONUS: What will be my biggest obstacle?

There’s a lot that goes into planning and executing your agency transition. What are you most anxious about? Whatever it may be, that’s the area where you need to spend the most time. Reach out to owners in your local professional organizations, do your research, and make sure you’re as prepared as you can be for whatever scares you most.

Find out what other agencies had to say about perpetuation in our Perpetuation Survey

For many, it’s the transition itself that is most intimidating. You can ease that fear by ensuring you have the right technology to easily transfer information. As we’ve heard from our partner agents, being able to turn over critical data with our Partner XE agency management system has been a lifesaver. With integrated accounting and email systems and an intuitive, easy to use interface, Partner XE leaves you one less thing to worry about in agency perpetuation.

To find out more about Partner XE, get in touch with an SIS team member today at sales@sisware.com.

Internal and External Agency Perpetuation: How to Choose

Internal and External Agency Perpetuation: How to Choose

You remember the days of you, a phone, and a desktop in a tiny office. The long days of calling carriers and hearing “no” after “no.” Waking up early and going to bed late, building a business based on hard work, professionalism, and care. And now it’s time to step away. Years of hard work and a lifetime of memories are invested in your agency. How do you pass it on?

Making Your Insurance Agency Perpetuation Choice

Agency succession can essentially take one of two paths: internal or external perpetuation. Internally, you can pass on ownership to key employees, friends or family members through sale or inheritance. Externally, you can sell to another agency or merge with another firm.

Discover the “who” and “what” to include in your perpetuation planning

As often happens with such important decisions, both methods have their benefits and drawbacks. Let’s explore the positives and negatives of each.

Internal Agency Perpetuation

Internal perpetuation means “keeping it in the family,” whether that is your blood relatives, friends, or trusted employees. Passing on your agency to someone you know has its benefits such as:

  • Provides cultural continuity
  • Allows owner to stay involved
  • Ensures experienced, trusted party is taking over
  • Gives customers and carriers a familiar face

Yet, there is a risk involved when passing on your agency to someone internally. Stats show that less than 40% of family businesses survive to the next generation and even less to the third. Most internal perpetuation fails due to finances. In many instances, the buyer cannot afford the buy-out, and you end up losing cash in the long run. You can avoid these financial issues by:

  • Establishing deferred compensation for you, the owner, or producers
  • Offering stock redemption as a form of deferred payment, or
  • Gifting the agency, requiring no payment

External Agency Perpetuation

Perpetuating externally means selecting an outside party to take over your agency. This could be another independent agency or a larger firm, but either way, it means you’re giving over control to someone who has no incentive to keep you involved. The benefits to external perpetuation include:

  • Larger cash benefits
  • Separation from involvement
  • Potential for more robust infrastructure

Still need more information? Access our full list of perpetuation resources here

However, external perpetuation also has its drawbacks. Selling to an outside party can cause stress for employees and a potential loss of company culture. Similarly, the transition may be difficult for customers. To combat this, you can stipulate certain employees stay on in influential positions or outline a “gradual release” of ownership. But, such conditions may negatively affect sales price.

The Bottom Line: Protecting Your Agency’s Value

No matter which way you go, it’s important to think about the value of your agency before making a decision. Whether it’s stock options or your book of business, buyers need to know its worth.

One of the best tools to keep track of overall agency value is your management system. Management software with integrated accounting and customizable reports, like SIS’s Partner XE agency management system, make tracking and reporting your agency’s value easy.

To find out more about how SIS and Partner XE can help you track and grow your business, contact us at sales@sisware.com.

Giving and Receiving: How to Pass on Your Agency

Giving and Receiving: How to Pass on Your Agency

The Gift of Insurance Agency Perpetuation

Chances are you have at least once received a gift and your first thought was: “Thanks?”. That question mark means you either don’t know what you’ll do with the gift or you didn’t want it in the first place. Both are not great reactions. Unfortunately, this is how some people feel when it comes to insurance agency perpetuation.

Something as large and meaningful as your independent insurance agency shouldn’t be received with hesitation! Whether you’re turning over ownership to a blood relative or a member of your larger agency family, it’s important to have both the giver and receiver on the same page. To avoid an uncertain or unwelcomed transition, both need to be prepared for perpetuation.

The SIS Agency Perpetuation survey showed 60% of respondents chose a family member as a successor. See the full results here.

Tips for the Giver: Wrapping Up Your Agency

  • Start planning now: There is no “too early” in planning your agency perpetuation. Some suggest starting as early as your mid-30s. No matter what age you are, it’s a good idea to put thought into how your agency will transition now.
  • Get a plan in writing: Focus first on defining milestones and a final end date. You should also consider incentives for employees to stay past the transition, client care plan, successor mentorship, and your ultimate goals for perpetuation.
  • Keep your plan fresh: Perpetuation is a big deal, and can’t be completed in one shot. Review your succession plan annually and update as needed. Include your successor in these reviews if you can.
  • Track and integrate agency progress: Part of your annual review of your plan should include analyzing agency data. Keep track of how you’re doing through reports generated by your agency management system.

Not sure what you should be tracking? Check out our post on data tracking and reporting

  • Get your accountant involved: There are multiple tax implications involved in agency perpetuation. Depending on how and to whom you pass on your agency, you may have to pay more taxes or get a break. Get your accountant involved right away to ensure you’re ready.

Tips for the Receiver: Respecting Past Practices and Making the Agency Your Own

  • Be a part of the plan: Be part of perpetuation planning as early as possible. Let the owner take the lead, but don’t be shy about inserting your ideas. It’s important to be upfront about expectations.
  • Decide on owner involvement: One big item to plan ahead is how much the giver will be involved after the transition. Be clear about what you want, yet keep an open ear to what the giver intends. It’s best to negotiate these items, along with anything involving cost and compensation, with a third-party, preferably a lawyer.
  • Practice patience: Be patient and practice compassion as you take ownership. The independent insurance business is relational, meaning there are a lot of emotional attachments to the agency itself. There can be some strong feelings that come with change.

Get even more perpetuation planning tips from our list of agency perpetuation resources

  • Embrace innovation…slowly: Transition is the perfect time to try something new. But, don’t change everything at once. Come up with one or two areas to start with right away. Move to others as time goes on, giving staff and customers time to adjust.
  • Consult with staff: To help ease transition, consult with members of your agency before implementing anything new. Ask for input on how to implement the changes you have in mind and be clear about why you feel they’re important. Ask for their opinions on what other improvements can be made. Focus on building trust and gaining employee buy-in: you’ll need both before making any new moves.

Leveraging Your Consistent Resource: Your Agency Management System

One thing that will be there on both sides of your transition is your agency management system. This is a great tool for setting up your agency to transition. And, it will create a sense of stability for your staff as ownership is transferred.

At SIS, we’ve helped multiple agencies work through a variety of transitions. Whether it’s moving from a legacy system to our all-in-one, web-based Partner XE management system, transitioning staff roles within the system, or providing all-staff training for a fresh start, we’re here to help.

To find out more about SIS, the services we provide, and our leading agency management system, Partner XE, visit us at sispartnerplatform.com.

Stop Putting It Off! Agency Perpetuation Planning Resources

Stop Putting It Off! Agency Perpetuation Planning Resources

There are many things we put off in life: dentist appointments, paying our taxes, that last nagging home improvement project. Whatever they are, these delayed tasks tend to be more of a hassle simply because we put them off.

Now is the time to cross it off!

We hear from our partner agencies that they are resisting perpetuation planning because they don’t know where to start. That’s why we’ve put time and effort into creating resources on this topic. Below are just some of the many tools at your disposal to help plan your agency’s transition.

Perpetuation Planning Resources

Your Best Resource to Plan Ahead

One of the most important aspects of perpetuation planning is organizing agency records. The best tool for keeping those records in order is the hub of your agency data: your management system.

Start now by organizing agency data the way you want with personalized workflows and custom reporting, both of which are offered through Partner XE. These simple enhancements make it easy for you and you staff to enter and track data, setting you up for a successful transition.

Check out more Partner XE capabilities here. We’re always available to help your agency serve better, work more efficiently, and reach your goals. Get in touch with us today to schedule a demo and find out more on the Partner XE system.

Using Your Agency Management System to…

Using Your Agency Management System to…

Today may not be the day your agency changes hands, but it can be the day you’re ready. It’s never too early to prepare for insurance agency perpetuation. No matter how much you try to control it, life is unpredictable, and you may be met with a perpetuation decision sooner than you thought.

It’s difficult to get a return on the lifelong investment that is your agency without displaying its value, especially if perpetuation comes at an unexpected time. This is something you can, and should, get started on now.

37% of agencies surveyed named maximizing agency value as the most difficult part of perpetuation – read more.

Chances are, you’ve already started recording your agency’s value. Your agency management system is built to keep track of your agency, so it contains all the information you need to display its value. But, it’s up to you to use your system to its fullest and illustrate value to potential buyers. Here are a few tips to get you started on recording and showing your agency’s worth.

How to Record Agency Value in Your Agency Management System

  • Use your system to capacity. Take advantage of integrated systems, personalized workflows, document management, and other efficiency-wielding capabilities. The more you put into your system (i.e. documents, syncing emails, financial information, etc.) the easier it will be to get a record of your agency’s worth out of it.
  • Stay on top of provider updates. This relates to the previous tip: you need to have the most up-to-date system to maximize its use. And, the age and usability of your agency’s tech have a bearing on agency value.
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Get integrated accounting. Syncing your financials with your agency management system makes it infinitely easier to produce an accurate book of business. Integration ensures that every penny spent and collected is recorded. Though you will need to add adjustments when determining final value, a set record of income and expenses will make it that much easier to determine when the time comes to sell.

Planning to perpetuate to a family member? Check out our eGuide on How to Make the Switch.

  • Track annual revenue with reporting. Again, integrated accounting comes in handy here. Use reporting features to set up reads on your revenue each year, so you don’t have to dig back later. Showing steady revenue (or growth) over the years adds to your agency value in a big way.
  • Get on the cloud. Take advantage of your system’s cloud-based abilities. Cloud storage keeps your records secure, saving you from starting at square one if disaster strikes. This type of data protection also adds to agency worth.
  • Audit for E & O compliance. Go through your system regularly to check for duplicates and other errors. A clean system will boost your value. Stay ahead of issues with capabilities like email integration and mobile access.

Don’t Recognize These Capabilities?

If capabilities like secure cloud storage, integrated accounting, and personalized workflows sound unfamiliar, it’s time for you to reevaluate your current agency management system. Get in touch with us today at sales@sisware.com to see how you can upgrade your management system, boosting your final value.