Selling your Brokerage: What you can Expect
So you’ve been thinking about selling your insurance brokerage. Whether this is new or something you’ve been contemplating for quite some time, you may be feeling overwhelmed or uneasy due to its complexity and your lack of knowledge of how to proceed and what to expect. In this post, we’ll provide a snapshot of what you can expect to encounter as you go through the process of selling your business.
We’ll highlight one reason why selling now makes perfect sense while outlining the key tasks you’ll encounter along the way. By being better aware of the road ahead, you’ll be better equipped to manage things more proactively, ensuring things run more smoothly and effectively, leading to a better outcome.
The Price is Right: Why Selling Now Makes Perfect Sense
For many broker owners, one of the more compelling reasons for selling now may be the favorable market conditions we’re currently experiencing. As is noted in the following graph, there has been a steady increase in brokerage valuations over the past 40+ years. Sale prices have increased noticeably over the past 15 years, with multiples rising to 3.5 - 4.5 times.
While financial factors are clearly attractive, money isn’t often the only consideration for owners interested in selling their brokerage. A variety of factors can influence the decision to sell, everything from a planned retirement to an owner’s health issues to an offer you can’t refuse, to name but a few. Often times it’s more than one factor that leads to the decision to sell.
Be Prepared
This motto isn’t solely relevant for Boys and Girls Scouts. Indeed, it has implications in most if not all facets of our lives, including business. And we cannot emphasize how crucial it is to be prepared when it comes to selling your brokerage.
Many broker owners make the critical mistake of not realizing the considerable amount of work that must take place before a business can be sold. In addition, they often underestimate the amount of time and resources that will be required before, during and even after the selling process.
Planning and preparation are the two principle elements here. You need to prepare yourself and your team for the amount of information the buyer will require to make a decision. Knowing this ahead of time will ensure you’re not surprised when the requests start rolling in, enabling you to be ahead of the game as the sale process evolves.
Due Diligence and the Sales Process
You’ll require access to a variety of business documents to satisfy the needs of prospective buyers, so it’s important you know what they are. It’s worth stating that some may need to be updated to reflect recent changes in the business, so you need to factor this into the planning process.
You will need the full support and buy-in from your legal, finance and accounting teams to both collect and update these documents. Giving them the heads up regarding the potential sale will be essential, as they will need time to review and revise these documents where required. Without their assistance, finalizing a sale will be next to impossible.
Documents and Agreements Required
There are also several financial, business, sales and employment documents you’ll need to have on hand when negotiating with a buyer, including the following:
Business Plan
Balance Sheet
Income Statements - 5 years
Letter of Intent
Non-Disclosure, Non-Compete and Non-Solicitation Agreements
Final Purchase Agreement and Other Agreements
Tax Planning Strategies
Another important consideration when selling your brokerage is to have a good understanding of your current tax situation, and what, if anything, you could do to restructure your business or personal circumstances to retain the maximum possible from the sale. Your lawyer and accountant can assist you with this, making any necessary changes to optimize your tax position.
For example, there is a significant difference in the tax obligations for sole proprietorships and partnerships versus corporations, so changing your current business structure could have a big impact on the taxes you’ll pay. Proper tax planning can help you avoid losing more to taxes than is necessary.
It’s Never Too Early to Start Planning
If there’s one final message we could leave you with, it would be to start early when thinking through and planning for the sale of your brokerage. Many experts recommend commencing 2-3 years prior to your preferred exit date to get top dollars. The sooner the better is truly your best option.
We’ve only touched on the very tip of the iceberg when it comes to the complicated exercise of selling your brokerage. In fact, it’s such a challenging endeavour for most brokers that we decided to write a whitepaper on the topic. If you’d like to receive a copy of Getting Maximum Value from the Sale of your Brokerage, simply fill out the form below and we’ll send you a copy and click the link for a preview.
To learn more about how we can partner to add more value for your clients and employees, please contact us at info@collectivfide.com.