If you’re reading this, it’s likely because your exit strategy is currently top of mind. If that’s the case, you should be proud that you have built something you believe is worthy of an acquisition or the next phase of leadership.
Building an insurance agency to the point of executing a succession plan is something remarkable, you’ve built a business that provides essential services to clients, supports your team, and likely has a legacy component to your family. However, whether your goal is retirement, a career pivot, or ensuring continuity for your team and clients, succession planning is a critical component of your agency’s long-term success.
I’m Drew Gurley, EVP of Growth here at Senior Market Advisors and I’ve worked with countless agency owners like you to navigate the complexities of succession planning. Here’s what I’ve learned: the earlier you start planning, the more control you retain over your future.
Why Succession Planning Matters
Succession planning isn’t just about deciding who takes over when you’re ready to step away. It’s about preserving the value of your agency, protecting your hard earned customers that trust and rely on you, and creating a sustainable legacy. Without a plan in place, many agencies face disruptions, client loss, or undervalued exits.
When done correctly, succession planning can and probably will:
- Maximize the valuation of your agency.
- Ensure continuity for your clients and employees.
- Reduce stress and uncertainty for you and your successors.
Key Considerations for Succession Planning
Define Your Goals
What does success look like for you? Do you want to sell the agency outright, pass it on to a family member, or transition leadership to a trusted employee? Your goals will shape the entire process.
My Advice: Write down your ideal outcome. This clarity will help guide all subsequent decisions and avoid conflicts down the line. And, you’ll get the question, “What exactly are you looking for?” This will be very helpful.
Understand Your Agency’s Value
An accurate valuation is essential. Many agency owners are surprised to learn their agency is worth more—or less—than they thought. Key factors influencing valuation include:
- Recurring revenue (e.g., ACA or Medicare renewals).
- Client demographics and customer retention rates.
- Staff experience and tenure.
- Diversification of products and carriers. (Health insurance vs. Medicare Supplements vs. Medicare Advantage plans)
- Policy Age.
- Intellectual capital.
- Proprietary growth and customer acquisition tactics and strategies.
Action Step: Work with a valuation expert who understands the insurance industry to get a clear picture of your agency’s worth. But remember, you’ll likely go through the valuation process a second time during due diligence with companies interested in purchasing you.
Build a Strong Operational Foundation
A well-run agency is far more attractive to buyers or successors. Focus on streamlining processes, documenting workflows, and ensuring your team can operate effectively without your constant oversight.
Consider:
- Modernizing your CRM and operational systems. Or implementing if you’re still doing business the “old school” way. You would be surprised how many agencies are still not fully leveraging technology.
- Reviewing contracts with carriers to ensure compliance and transferability. This is a big one, especially when you have compensation deals that are structured with payments directly from carriers paired with wholesale bonuses.
- Training team members to handle critical functions.
Identify Potential Successors
Do you have a family member, key employee, or external buyer in mind? Each path has pros and cons:
- Family Transition: Allows for legacy continuity but may require training or external mentorship.
- Employee Buyout: Often smoother but depends on financial feasibility and interest. There are a few ways to structure these arrangements.
- Third-Party Sale: Provides a clean exit but may involve cultural shifts for your agency.
Advice from Experience: Vet potential successors carefully. Look for alignment in values, work ethic, and commitment to clients. And, I would consider exploring each of the three options as it’s a great mental exercise during the planning process.
Develop a Transition Plan
A clear transition timeline ensures everyone involved knows their role and responsibilities. Key elements include:
- Training and mentoring for the successor. This should start well before your exit is finalized.
- Client communication strategies to minimize disruptions. Customer experience is critical as it’s what holds your deal together with your buyer.
- Timelines for transferring ownership or shares.
Example: One agency I worked with created a 24-month transition plan, including weekly mentorship meetings with the successor and quarterly updates to key clients.
Plan for Taxes and Financial Implications
The structure of your exit will have significant tax implications. Work with financial advisors who specialize in agency sales to:
- Minimize capital gains tax.
- Ensure proper retirement funding.
- Protect your estate.
My Advice: I’m not a tax or legal professional, definitely talk to your attorneys, accountants and financial advisors! 🙂
Consider a Contingency Plan
Life is UNPREDICTABLE.
While you may have a timeline in mind, unforeseen circumstances (like health issues) can accelerate the need for a succession plan. A contingency plan ensures your agency’s stability, no matter what.
Common Mistakes to Avoid
- Waiting Too Long: Succession planning isn’t something you can rush. If you can, start at least 5 years before you anticipate exiting.
- Neglecting Client and Staff Buy-In: The people who rely on your agency need to feel confident about its future. Exits and M&A deals can often create a lot of operational turmoil that can be prevented with strong communication. This is a big deal.
- Underestimating Emotional Attachments: Letting go of something you’ve built is hard. Surround yourself with trusted advisors to make objective decisions.
Partnering with an Expert
Succession planning isn’t just about checking boxes—it’s about securing your legacy so you can hang your hat up at the end of the day and look back at what you have built with pride. Our team has spent years helping agency owners navigate this journey, and our approach is personalized, strategic, and focused on your unique needs.
Whether you’re just starting to think about succession or selling your insurance agency or ready to take action, having a guide who understands the intricacies of the insurance industry is priceless.
Final Thoughts
The best time to start planning your succession was yesterday.
The second-best time is today.
By taking proactive steps, you can ensure your agency thrives long after your leadership, providing peace of mind for yourself, your family, and your clients.
Let’s work together to make your vision a reality. Senior market advisors is a leading Medicare FMO and looking to connect with health insurance agency owners who are actively seeking help with their succession plan. Contact our team today.
