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12 Reasons YOU Should NOT Sell Your Own Agency (Part 2 of 4)

Have you ever bought or sold an agency? Did you use a consultant to structure the deal or did you do it yourself? If the latter, there's a good chance you might have left a considerable amount of money on the table and didn't even know it. Good mergers and acquisitions consultants don't come cheap but, in this article, Howard Candage explains how a consultant will usually save you money far beyond his or her consulting fee. If you're thinking about buying or selling, you MUST read this article!

Joshua took over the agency. Dad took a note for his retirement. Everything went along swimmingly from Dad's standpoint. He checked in periodically with Joshua and things seemed to be going great. Joshua would ask for advice and Dad would give it as necessary. Silas, however, wondered just how things were really going as most of the producers he had when he owned the agency had left. A couple of them had even complained bout Joshua to him, but the checks came in and he knew Joshua was competent. The agency volume seemed to be doing OK and, with the checks coming in, he had better things to do than second-guess his son.

Joshua, in the meantime had "acquired" a couple of partners. They had books of business and were out to sell them and stay in the business. They were both people he had known and were trustworthy so he put some deals together to acquire the books and have them as partners. They would get to the paperwork later on. The deals seemed to be working but some of the representations one of the "partners" had made did not seem to be coming to fruition.

The agency was running along but the monthly payments were coming tight as he had paid over two times revenue for the agency, as his Dad had told him that is what agencies are going for. He had little money but Dad needed little down payment as he had done so well. But the payments were coming harder and harder.

As Joshua analyzed the business, one of the reasons the payments were coming with more difficulty was that their largest carrier, Sure Insurance Company (Joshua had shifted Acme's book to Sure), seemed to be playing games with the profit sharing numbers. For three years running, Sure had a loss ratio in the 40's or 50's right up until the fall. The reserve strengthening in the fall always seemed to run their loss ratio right over the 55% range in November or December. Joshua complained and wrote to the president of the company, but got little satisfaction. He complained at agent meetings and this had happened to other agents in his area as well.

After the third year of this, Joshua noticed his loss ratio adjustment for October and November once again, but this time he decided it was just too much of a coincidence. He argued on behalf of himself and other agents vociferously until the relationship with Sure Insurance was on tenuous ground. No one seemed to be listening. The payments were still due. He had a talk with his dad, who agreed with him that this was a problem.

"Perhaps you should not have been so anxious to move the book to Sure Insurance from Acme," he said. Joshua thought about this a lot and the relationship his father had with Acme and how he was being treated by Sure Insurance. He did have one of their biggest books in the territory. He was a very important agent to them but his loss ratio was just over the line to realize profit sharing. It became very frustrating and in the fifth year when the loss ratio climbed, Joshua decided to do something about it.

When the account current for Sure Insurance became due, he called them and told them he was withholding payment due to the contingency problem. He received a call from the attorney for Sure Insurance. Pay up, was the message. Joshua continued to hold out. After all, this was a righteous cause! After a few pieces of correspondence and some arguing, Joshua arrived at his office one morning to be greeted by a group of attorneys and law enforcement personnel. Was this his day to be on 60 minutes, he thought?

Well what it was...was his day to have Sure Insurance take control of the book and the law was there to serve notice of this "transaction." While I do not know all the particulars of the mechanics of this transaction, Joshua had tried to stare down one of his companies and they had not blinked. They walked off with his biggest book of business.

In the meantime, his "partners" had ideas of their own. They brought suit for the problems and to take over the agency. Need I say more?

"Dad" has now lost the condo and the Ski home. Could not afford to keep them. He is working as a producer in an agency and is making $18,000.00 per year plus commissions. He is 72 years old and lately some people are saying he is a bit irrational in his dealings. They think he may be losing it a bit. The agency he has been working for has been sold and he was not part of the deal.

His old agency, out of necessity, has long since been sold, but the note to Dad? We can do this transaction, why pay all that money for "those guys" to find ways to kill the deal. Well it is my son, you know, what's going to happen anyway?

Now we know what happened, but could this have been prevented? I think so, with the proper expert advice. Read on and I'll give you my 12 Reasons Why YOU Should NOT Sell Your Own Agency....

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