Selling an insurance agency is not like selling a home or commercial building. An insurance agency is a business and the financial performance of the agency will make up 90% of its value. There are 2 formulas most buyers use to determine what they’ll pay for an agency.
The first way is a multiple of the agency revenue. You’ve heard the term one time, two times, 1.5 times, etc. The truth is, there’s no set multiple that determines the value of an insurance agency. Many people will call and ask “What are agencies going for these days”. That’s like asking for a ball park figure of what it costs to insure 4 cars and 4 drivers in Los Angeles. It’s impossible to determine the rate without getting detailed vehicle and driver info.
The second way buyers value an agency is a multiple of EBIDTA. Earnings, before interest, depreciation, taxes and amortization. This is basically your bottom line profit. The multiple of profits a buyer is willing to pay will be determined by many variables including but not limited to:
- Commission Revenue
- Cash Flow
- Loss Ratios
- Years in Business
- Seller Financing
Again, these are just a some of the factors involved in determining agency value. When we meet with prospective sellers we work with you and help determine a competitive selling price. The last thing you want to do is overprice your agency and have it sit on the market for 6 months. When it’s available for several months people grow weary of it and think something is wrong so they avoid it. Price it right so it sells and you can start your next venture.
If you need assistance determining the value of your agency, please contact us.
One Response to “Many ways to Calculate the Value of Your Insurance Agency”
Robert L. "Bob" Bell, RHU Says:
July 10th, 2012 at 6:28 pm
May wish to sell if the price is right