Thinking (Dreaming) of Retirement?
Do you dream of retiring? Before you leap, read this article to help you decide if or when you’re ready to perpetuate your agency.
Every agency owner we’ve ever met has days in which they would gladly hand the keys over to someone else and walk away from the agency business. No doubt the role of advisor, insurance expert, price shopper (insurmountable), problem solver and mediator between the carrier and the client can get frustrating, sometimes to the point of contemplating whether it’s all worth it.
If these days are infrequent and offset by the companies and the customers saying nice things about you, by prospects calling to tell you that your customers referred them to you as the “expert” in insurance issues, and by the carrier visit with a nice contingency check, then most of us can handle the tough days and keep looking forward to the better times.
However, if the frustrating days are becoming more frequent, if you find yourself asking yourself and your family why you must tolerate mistreatment, and if you feel that you don’t have to remain a convenient target for unearned criticism, it may be time to evaluate your future and determine if the career you have chosen has become a life sentence with the key to your release hanging just outside your jail door waiting for you to pick it up and release yourself from your shackles.
How Do You Know it is Time to Transition the Agency?
That takes a bit of planning and some thought beyond the day after your frustration peaks.
Planning For the Future
Whether you are in mid-career (at any age), experienced and ready to go, or well beyond ready, the first thing you need to do is to assess your assets to determine if you can continue your lifestyle (or a lifestyle to which you embrace) sponsored by the assets you now have at your disposal.
Don’t think about the value of your agency until you have determined your other asset value and debt. Do you have sources of income that could offset what you take out of the agency? Remember, what you take out of the agency is like the goose that lays golden eggs. While you own the goose, you get to partake in the golden eggs every year and all you must do is feed it (add customers and renew current policies) and clean up afterwards (the not-so-nice parts of our jobs). Meanwhile the eggs feed you and pay your way and you still have the goose as your nest egg for the future.
Once you sell the goose, someone else enjoys the eggs and, once you have been paid, they begin building their own value nest-egg for their use when they sell the agency.
So, if you have spent your money on houses, cars, vacations and the finer things in life, you may not be able to continue that lifestyle without the annual income from the agency. If you have invested some of your income into assets that will pay you dividends in the future, that money will replace some of the annual income that will eventually stop when you receive the agency’s value.
What is the Right Figure?
Your goal is to determine how much you will need to live the lifestyle to which you would like to become accustomed after the sale of your agency.
For example: if you have been taking $200,000 from the agency annually and expect the agency to be valued at $2 Million, the payout of that $2 Million will only last 10-to-15 years depending on whether you are cashed out at once or are paid with interest over time. If you have $100,000 in recoverable annual assets, either that payout can be stretched to 15, 20 or more years – or – you can invest the value in other liquid assets that will provide you with an annuity for the rest of your life.
So, identifying your pre-existing assets is even more important than determining the value of the agency.
Once you know your baseline income position without the proceeds from the agency, it’s time to get a valuation that tells you what the value would be to you if you continue to operate the agency the same way you have in the past and the value if you sold the agency (in the way that you are likely to sell it, either internally to someone in the agency or externally to another agency).
If the proceeds of the sale are sufficient to allow you to live your desired lifestyle for a long enough period to satisfy you (considering your other income potential), you are in a financial position that allows you to sell.
However, if you find that the agency’s value is insufficient to sponsor your lifestyle, you have other decisions to make. Should you sell or merge your agency and negotiate to stay with it for several years? Should you consider changing your lifestyle options? Or do you find that you cannot sell without damaging your lifestyle?
The Financial and the Personal Aspects of Retirement
There are two distinct parts of perpetuating an agency: financial and personal aspects. To make any transition palatable for you overall, you must consider both
Let’s face it, even the most affable among agency owners has an ego. You cannot work for yourself and/or have others work for you for any period without getting used to making decisions and wanting to do things the way you believe are correct. Most former agency owners find it disturbing and unsatisfying working for others (unless they are partners and are still treated like owners).
Don’t underestimate the emotional, mental and physical ramifications of doing things that you do not like or working with/for people with whom you disagree on fundamentals. More than a few former agents have mentally and physically deteriorated because of the way they have been treated after the sale, even though the financial aspects of the deal were excellent. Truly, money does not buy happiness.
Get Competent Advice Before Deciding
You need help, advice and counsel to ensure that any decision you make, especially due to your frustration with the daily conduct of your business, does not assume that the grass is always greener by selling your agency outright.
We have been in the business of insurance agencies for over 50 years. We can attest to the fact that there are as many ways of perpetuating agencies as there are agencies. The difference in the methods used depends on matching the goals of the seller and buyer and assuring that there is sufficient cashflow in the selling agency to a) accomplish the selling owners’ long term financial goals and b) allow the buyer (internal or external) to pay for the agency over an acceptable period of time.
Disregarding either the financial needs or the ego drive of the seller will turn a good financial career into a poor retirement. Most of the time no one realizes that the decision made by the seller was inadequate because that information is never broadcast when the seller must change lifestyles as the result of the sale of the Golden Goose and relinquishment of the revenue driven by the sale of its eggs.
Call me to discuss your situation and gain insight into whether you will enjoy a sale of your agency or not in the long term.
Al Diamond 856 779 2430
