Strategic Resources for Your Insurance Agency

Why It’s Critical to Have Expert Representation in an Agency Buy/Sell Transaction

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Whether you’re looking to buy or sell an insurance agency, it’s crucial for each party to have expert representation to ensure the deal goes smoothly. These transactions are often complex, with a unique set of challenges or issues arising out of each deal.

“Most people only have one agency to sell,” says Jon Persky, CPA, CIC, PHR and owner of Optimum Performance Solutions, LLC in Tampa, Florida. “You’ve worked your entire life to build this agency, and you want to maximize the value you get for it. So, you need to work with people that are involved in buying and selling agencies on a daily basis.”

Get More Bang for Your Buck

Persky recalls the For Sale By Owner commercials that used to air back in the 1980’s and 1990’s, in which home sellers would exclaim, “I sold my house on my own, and I saved $12,000 in real estate commissions!”

“What those commercials never told you is that number one, it takes a lot of time and effort on the part of the person handling the sale,” Persky explains. “Do you really want to take on that additional responsibility in addition to running the agency? Number two, it takes a lot longer for someone inexperienced in this type of transaction to do the deal on their own as opposed to hiring a professional. And most importantly, while it’s true the person saved $12,000 in the real estate commissions, typically a real estate agent would have gotten the seller a higher price to more than cover the cost of the commission. All of those things hold true when it comes to selling an insurance agency.”

Ensure Your Interests are a Priority

To ensure they receive unbiased advice, both sides of an agency buy/sell transaction should have their own representation.

“A legal counsel can really only truly represent one side of a transaction and be completely loyal to the party they represent,” emphasizes Thomas M. Braniff, JD, CPCU, President of Texas Insurance Consulting and Principal of Braniff Attorneys | Counselors in Houston. “In most cases, the sale of one’s agency or book of business is a very significant sale of a key asset of the seller. Therefore, it really behooves the seller to have their own counsel to ensure they are fairly represented—a completely loyal party that’s looking out for your best interests exclusively.”

A Team of Experts = Smooth Sailing

Buying or selling an agency can be a tricky process with plenty of bumps in the road. If you attempt to go at it alone, you may end up making a costly mistake.

 “There are a lot of different little issues that come up that are unique to each transaction, such as the payment arrangements, the terms of the deal, whether employees are going with the deal and other assets are going with the deal,” Braniff explains.

This is precisely why it’s essential to hire not only a CPA and an attorney, but also a consultant that specializes in the insurance industry. (Many of these consultants are listed on the Agency Equity website). “An industry consultant specializes in insurance agency transactions,” Persky clarifies. “They’re not involved in the selling of restaurants or bowling alleys. There are a lot of business brokers out there who don’t understand how the deal needs to be structured and the other nuances of an insurance agency, so this is important.”

Persky adds that you should also have an attorney to review the contract. “Typically, I’ll do the initial draft of a sample asset purchase agreement and then have my client’s attorney review it to make sure it’s compliant in that state,” he explains. “This is because many attorneys don’t understand the correct terminology or unique issues related to the sale of an insurance agency.”

Likewise, Perky recommends that you include your CPA. “If you structure the deal incorrectly, more than half of the sales price can end up going to Uncle Sam,” he stresses. “You need to have your CPA involved to review the deal and explain what the tax implications are to you and how much you’re going to net.”

However, keep in mind that many CPAs do not understand the specific laws that apply to insurance agencies. In fact, Persky recently saved a client $130,000 in taxes when he caught a detail the CPA missed.

“Unless you have both an attorney and a CPA that is intimately familiar with insurance agencies, you really should hire an industry consultant who knows all of the ins and outs,” he concludes.

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