My name is John Wickhem, and I’m currently your HawkSoft User Group, Inc. Treasurer. For this month’s article, I have been asked to deviate from the HawkSoft management system and talk about agency perpetuation. I’m in my late 60’s and up until 10 years ago, my intention was to sell my agency on the open market.

Valuing Your Agency

I went to the Independent Insurance Association of Wisconsin (IIAW) and the Professional Insurance Association (PIA) and collected many options on how to value and market my agency. I would highly recommend that anyone looking to sell their agency check with either or both associations to develop a strategy for marketing your agency and to know what you want and what you can get for your agency.

I have always used a percentage of sales to best do the valuation.  I was informed by both associations the going rate can vary from 1.25 to 2.50 times annual commission. Other factors to consider include will they be keeping your location, staff and agency name?

There are three ways you can get paid:

  • Payout in lump sum and walk away. Ask about the contingency bonuses.
  • Payout over time but less than 2 years. Same basis as #1 but then you have to take into account interest on money, service or producer contract with the purchasing party and details on professional insurance liabilities. Again, ask about the contingency bonuses.
  • Sell to a LLC or Cluster. Then plan an exit strategy with buy-out or roll-over.

Changing Course

I had planned to do the open market sale but then my son, Derek, showed interest in learning and taking over the agency. We have used many of the same sources to develop a fair and equitable agency exchange.

  • Derek has formed his own LLC
  • He will pay me over 10 years which he can handle and that gives me an opportunity to phase out as I want over time
  • Along with the sale agreement, we have a Producer Agreement with me for all new business and a stipend agreement with me for service to current ongoing policies
  • He has setup his own bank accounts in which we have informed each Insurance company we represent.  They are adjusting their billing and invoicing to meet this change. The hardest part of the change is the companies. They all work differently.  This produces many unique challenges. Be prepared to be frustrated with them during this transition.

We are now 5 months into the transition and things seem to be going well.   By selling to Derek, I feel very confident that my insureds will be handled the way I have always done it.  Derek has been employed here for 10 years and knows the process. If I am selling to someone else, I do not know how my insureds will be handled.  When you have been in the business as long as I have, your insureds are your friends, and you want the best for them!

Whatever you decide, patience and persistence are the main keys.