Competition is fierce when it comes to buying an independent insurance agency. When compared with other small business acquisitions, it is probably the most competitive area. This is why it is important to be prepared if you are going to acquire the right insurance firm for you. We have put together some top tips to help you get started. Read on to discover more.
Get on top of your finances – Before you start looking for acquisition propositions, you need to work out what you can afford. You need to be realistic. As a general rule of thumb, you should have about 20-25 per cent of the potential purchase available in cash. This is to cover operating capital that is needed to run the company, as well as the down payment.
First impressions count – A lot of buyers make the mistake of negotiating as soon as they meet with a seller. This is not advised, and can result in an adversarial discussion. Instead, use this as an opportunity to present yourself as a qualified candidate. You need to ask intelligent questions, build rapport, and heap on the praise.
Due diligence – Conducting due diligence is of paramount importance. While we may like to believe that everyone is as honest as we are, it is not always the case. Plus, good people can leave out crucial details simply for the purpose of avoiding complications. You should never simply expect the other side to give you exactly what you need.
Understand the process – You need to understand the process so that you can move forward with confidence and speed, enabling you to close transactions. Generally, the process entailed is as follows: an introduction to the opportunity, both parties’ disclosure, information about the agency is realised, you meet with the seller, written offer made and subsequent negotiations, due diligence, purchase contract executed and closing contingencies are removed, closing, and finally, the post-closing transaction.
Don’t operate at a leisurely pace – You need to be aggressive in your approach to acquiring an insurance firm. You cannot afford to go at a leisurely pace or be half-hearted. A lot of people will have a team that works full time on their acquisitions, looking for potential opportunities so that they have the best chance of selecting the right agency. If you do not adopt this approach, and you acquire insurance agencies on a part-time basis, you will miss out on good opportunities.
Be flexible on deal structure – You can miss out on an opportunity by getting stuck on one detail and failing to see the bigger picture. This does not mean that you should give into all demands. However, you need to assess the size of the value gap. Is it worth losing this opportunity for the detail in question?
If you follow the six tips that have been mentioned above, you should find it a lot easier when it comes to buying an insurance agency. Careful planning and preparation can make all of the difference.