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 [email protected].

Share This!