How to Sell an Insurance Agency

How to Sell an Insurance Agency

Are you considering selling your insurance agency? Now is a great time to do so as many agencies are receiving excellent valuations and receiving multiple competitive offers. In this review, we discuss the sales process, focusing on the step-by-step journey. We also discuss general information about the insurance industry and the industry’s rule of thumb data. 

About The Insurance Industry

Needless to say, the insurance industry is massive. There are many different subsectors, such as home insurance, auto insurance, worker’s compensation insurance, liquor liability insurance for restaurants, and much more. New owners must have an insurance license, which may limit the market of potential buyers. 

 

Depending on the industry, your best bet may be to sell to a larger competitor; new insurance owners are rare as the larger companies tend to bid up the purchase price. Overall, the industry is relatively pandemic-proof, and it provides your employees the flexibility to work from anywhere (among numerous additional benefits). Here are the most recent industry performance numbers and projections: 

 

  • There are approximately 434,000 insurance agencies in the U.S. 
  • There was a 2.2% annual growth for the insurance industry from 2018 to 2023
  • The insurance industry generates $196.3 billion in annual revenue
  • The annual profit for the insurance industry is $34.3 billion
  • Experts predict a sizable increase in annual growth (1.7%) from 2023 to 2028

How to Value an Insurance Agency

Insurance agencies and brokerages that have more than $5 million in annual net sales typically see much higher valuations, some of which have gone higher than 14 times the company’s EBITDA. However, the rule of thumb data (excluding outliers) for small to mid-sized insurance agencies and brokerages are as follows: 

 

 

How to Sell an Insurance Agency

You can sell an insurance agency by following the five-stage process below. Of course, within each stage there are numerous smaller steps that must be accomplished. Due to the complexities involved, we strongly recommend working with a business broker to ensure success with the sales process.

 

  1. The valuation stage
  2. The preparation stage
  3. The marketing stage
  4. The due diligence stage
  5. The closing stage

The Valuation Stage

A business valuation determines the worth of your insurance agency. Specifically, it determines how much potential buyers are most likely to offer and pay to acquire your insurance agency. This valuation determines (to a large extent) your asking price. It also determines your negotiating leverage and allows you to better plan your other sales goals. 

The Preparation Stage

Once you have received your valuation and planned your sales goals and strategy (see the valuation stage), you can begin preparing your insurance agency for sale. There are several parts to this process. First, you will need to prepare your agency’s documents, such as:

 

  • Financial documents (i.e. tax returns, profit and loss statements, etc.)
  • Legal documents (insurance license, lawsuit history, etc.)
  • Operational documents (policyholder lists, employee lists, etc.) 

 

Your business broker can help you prepare all of the documents you will need, ensuring you do not forget any that are important; this will help save you time later in the sales journey. Next, you will need to prepare your confidential information memorandum (CIM) and non-disclosure agreement (NDA). This allows you to properly market your company while still maintaining the confidentiality of the sale. It may also be beneficial to conduct a video interview to show to potential buyers as well. 

The Marketing Stage

Once you have received your valuation, planned your strategy, and prepared for the sale, you will then need to market your company. Of course, this is where your business broker will lead the charge. They will leverage all of their private channels (databases, networks, contacts, etc.) to get your sales memorandum in front of the eyes of potential buyers. This will likely include other insurance agencies, especially ones who have a track record of and are interested in acquiring other insurance agencies in your area. Ultimately, your business broker, along with your input, will negotiate a deal and have the buyer sign a letter of intent (LOI). 

The Due Diligence Stage

A signed LOI provides a good indication that the buyer whose offer you accepted is serious and capable of purchasing your insurance agency. You can also trust them to keep the information they view during due diligence confidential, particularly if they have signed a non-disclosure agreement. During due diligence, the buyer may request the following:

 

  • A review of your insurance agency’s legal, financial, and operational documents
  • Answers to important questions the buyer has about your insurance agency
  • A visit to your office to review daily operations
  • Regular (i.e. weekly) meetings with you (the seller) throughout the due diligence process

 

Your business broker should implement a due diligence timeline (or due diligence map) to help ensure the process moves along quickly. Otherwise, you could experience major delays as the buyer drags their feet through the process. With each passing day, the risk of a canceled deal grows larger. For this reason, moving to close the sale as fast as possible should be your primary goal. 

The Closing Stage

Lastly, after due diligence, you will schedule a time to close the sale with the buyer, lender, escrow agent (if applicable), and you and the buyer’s respective attorneys. After the sale closes, you may have an obligation to train the buyer to take over your role as owner; the details of training are discussed and agreed upon during negotiations and/or due diligence. 

Start Your Sales Journey With a Free Business Valuation

Are you considering selling your insurance agency? If so, then our experienced and trusted Dallas business brokerage can help you, especially if you are located in Texas. For more information and to receive a free, no-obligation business valuation, contact us today.

How to Sell an Insurance Agency

Are you considering selling your insurance agency? Now is a great time to do so as many agencies are receiving excellent valuations and receiving multiple competitive offers. In this review, we discuss the sales process, focusing on the step-by-step journey. We also discuss general information about the insurance industry and the industry’s rule of thumb data. 

About The Insurance Industry

Needless to say, the insurance industry is massive. There are many different subsectors, such as home insurance, auto insurance, worker’s compensation insurance, liquor liability insurance for restaurants, and much more. New owners must have an insurance license, which may limit the market of potential buyers. 

 

Depending on the industry, your best bet may be to sell to a larger competitor; new insurance owners are rare as the larger companies tend to bid up the purchase price. Overall, the industry is relatively pandemic-proof, and it provides your employees the flexibility to work from anywhere (among numerous additional benefits). Here are the most recent industry performance numbers and projections: 

 

  • There are approximately 434,000 insurance agencies in the U.S. 
  • There was a 2.2% annual growth for the insurance industry from 2018 to 2023
  • The insurance industry generates $196.3 billion in annual revenue
  • The annual profit for the insurance industry is $34.3 billion
  • Experts predict a sizable increase in annual growth (1.7%) from 2023 to 2028

How to Value an Insurance Agency

Insurance agencies and brokerages that have more than $5 million in annual net sales typically see much higher valuations, some of which have gone higher than 14 times the company’s EBITDA. However, the rule of thumb data (excluding outliers) for small to mid-sized insurance agencies and brokerages are as follows: 

 

  • Insurance agencies sold between 3.47 and 5.07 times the Seller’s Discretionary Earnings (SDE)
  • Insurance agencies sold between 4.00 and 6.46 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
  • Insurance agencies sold between 1.63 and 1.91 times the annual net sales

 

How to Sell an Insurance Agency

You can sell an insurance agency by following the five-stage process below. Of course, within each stage there are numerous smaller steps that must be accomplished. Due to the complexities involved, we strongly recommend working with a business broker to ensure success with the sales process.

 

  1. The valuation stage
  2. The preparation stage
  3. The marketing stage
  4. The due diligence stage
  5. The closing stage

The Valuation Stage

A business valuation determines the worth of your insurance agency. Specifically, it determines how much potential buyers are most likely to offer and pay to acquire your insurance agency. This valuation determines (to a large extent) your asking price. It also determines your negotiating leverage and allows you to better plan your other sales goals. 

The Preparation Stage

Once you have received your valuation and planned your sales goals and strategy (see the valuation stage), you can begin preparing your insurance agency for sale. There are several parts to this process. First, you will need to prepare your agency’s documents, such as:

 

  • Financial documents (i.e. tax returns, profit and loss statements, etc.)
  • Legal documents (insurance license, lawsuit history, etc.)
  • Operational documents (policyholder lists, employee lists, etc.) 

 

Your business broker can help you prepare all of the documents you will need, ensuring you do not forget any that are important; this will help save you time later in the sales journey. Next, you will need to prepare your confidential information memorandum (CIM) and non-disclosure agreement (NDA). This allows you to properly market your company while still maintaining the confidentiality of the sale. It may also be beneficial to conduct a video interview to show to potential buyers as well. 

The Marketing Stage

Once you have received your valuation, planned your strategy, and prepared for the sale, you will then need to market your company. Of course, this is where your business broker will lead the charge. They will leverage all of their private channels (databases, networks, contacts, etc.) to get your sales memorandum in front of the eyes of potential buyers. This will likely include other insurance agencies, especially ones who have a track record of and are interested in acquiring other insurance agencies in your area. Ultimately, your business broker, along with your input, will negotiate a deal and have the buyer sign a letter of intent (LOI). 

The Due Diligence Stage

A signed LOI provides a good indication that the buyer whose offer you accepted is serious and capable of purchasing your insurance agency. You can also trust them to keep the information they view during due diligence confidential, particularly if they have signed a non-disclosure agreement. During due diligence, the buyer may request the following:

 

  • A review of your insurance agency’s legal, financial, and operational documents
  • Answers to important questions the buyer has about your insurance agency
  • A visit to your office to review daily operations
  • Regular (i.e. weekly) meetings with you (the seller) throughout the due diligence process

 

Your business broker should implement a due diligence timeline (or due diligence map) to help ensure the process moves along quickly. Otherwise, you could experience major delays as the buyer drags their feet through the process. With each passing day, the risk of a canceled deal grows larger. For this reason, moving to close the sale as fast as possible should be your primary goal. 

The Closing Stage

Lastly, after due diligence, you will schedule a time to close the sale with the buyer, lender, escrow agent (if applicable), and you and the buyer’s respective attorneys. After the sale closes, you may have an obligation to train the buyer to take over your role as owner; the details of training are discussed and agreed upon during negotiations and/or due diligence. 

Start Your Sales Journey With a Free Business Valuation

Are you considering selling your insurance agency? If so, then our experienced and trusted Dallas business brokerage can help you, especially if you are located in Texas. For more information and to receive a free, no-obligation business valuation, contact us today. Sigma Mergers & Acquisitions is the leading Mergers and Acquisitions, Business broker advisory firm in Dallas Texas specializing in facilitating strategic transactions for businesses across diverse industries. Our seasoned team of experts meticulously navigates clients through the intricate process of Business brokerage, mergers, acquisitions, and divestitures, ensuring seamless transitions and maximizing value. With a client-centric approach, we offer tailored solutions designed to meet the unique needs and objectives of each organization. Our comprehensive suite of services encompasses every aspect of the transaction lifecycle, from initial valuation and market analysis to due diligence, negotiation, and post-merger integration. Through a combination of extensive industry experience, market insights, and unparalleled dedication, Sigma Mergers & Acquisitions delivers exceptional results that drive growth and prosperity for our clients. Whether you are considering selling your business, seeking strategic acquisitions, or exploring other growth opportunities, trust Sigma Mergers & Acquisitions to be your trusted partner every step of the way. Contact us today to discover how we can help you unlock the full potential of your business and achieve your strategic objectives.

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Scot Cockroft Business Broker
Hi, I’m Scot Cockroft.

When I founded Sigma Mergers and Acquisitions back in 2003, I had sold my business the year prior.

Now, that can sound good, but let me tell you, back in 2003, it was not easy to sell a business. Not that I’m saying in modern day times it’s easy to sell a business, but back then I interviewed broker after broker after broker, and no one was interested in actually seeing the value that my business brought to the table.

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Sigma is a the leading business broker in with Corporate offices in Dallas/Fort Worth with roots from 1984. Over 600 businesses sold in Dallas, Fort Worth, Texas, Oklahoma and across the South. Sigma provides full business brokerage services with NO upfront fees. We provide Market approach business valuations for business sales. Sigma is passionate about helping business owners achieve their goal of financial security. Contact us today for a free no obligation business valuation. We are here to help you achieve your goals.

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