The Essential Guide to Insurance Agency Succession

At some point, an agency owner reaches the average retirement age of around 62. They may begin to think about whether they want to start succession planning. Of course, that can bring a lot of questions with it. What makes up a successful succession plan? How do you get started creating one?

If you’re an insurance agent curious about creating an insurance agency succession plan, you’ve come to the right place. I’ve devoted my blog to providing great insurance business content. So, while you’re here, make sure that you subscribe to my blog so that you get independent insurance agency principles and insights that you definitely won’t get anywhere else. And drop me a line. I’d love to hear from you.

The Truth about Agency Succession Planning (That No One Wants to Face)

For years there’s been a problem among agency owners.  And that problem is that agency owners don’t realize that they need an agency perpetuation plan if they want their business to continue. 

There’s also an even bigger problem here too because most agency owners don’t think about agency succession planning until they’re ready to get started. Waiting until the last minute causes a lot of problems.

If you’re an agency owner with a plan for internal perpetuation, then you really need to consider starting succession planning early. That is one of several concepts that require advanced preparation. Even if you plan to sell your insurance agency to an external agent, you need to think about starting the process at least five years before you want to sell.

But if you’re within those five years, it doesn’t mean that you can’t have a successful exit strategy. It just means that you have more things to do, in a compressed time frame and you may have a much more difficult time maximizing the value of your agency as a result. So, it could be much more difficult if you’re at retirement age and you want to get the most out of your agency.

If you have time to create a robust succession plan, it just makes good business sense since you're planning for your long-term future and for the future success of your insurance business once you hand over the reins.

Should You Sell Your Book of Business to Your Potential Successor?

Before we dive into some of the major components found in the creation of a successful insurance agency succession plan, let’s answer an important question. 

When it comes to an exit plan, when you get to the average retirement age (or older — some people never want to retire!), you have options. Two of those options are creating a business succession plan to sell your entire agency (the main focus of this blog post) or just selling your book of business. 

You do have the option to sell your book of business to your potential successor instead of selling them your entire agency. This might be a good option if your agency isn’t doing well, and it would create an unwelcome financial burden on your future leader. However, if your agency is in good financial shape, creating a robust succession plan is the best choice because you’ll get the best possible return.

developing a Successful Succession Plan

Let’s look at some of the major inclusions found in the creation of an insurance agency succession plan that meets your needs. Ask yourself the following questions and answer them honestly. Answering these questions honestly is the only way to make sure that you can create an effective plan.

Which Family Members Are Willing and Able to Take Over?

When it comes to agency succession planning, many dream about family members taking over. Sure, it sounds great. But you have to ask whether it’s realistic. You have to think about business continuity in a way that is grounded in reality. 

Yes, it would be wonderful if you have at least one family member who wants to take over, but just because something sounds wonderful doesn’t make it real. Remember, like I said earlier, that the best time to start succession planning is at least five years before retirement age.

So, think realistically. Do you have any family members who want an amazing growth opportunity within the next five years? And critically important to answer honestly is whether they have the business acumen and drive to be a successful business owner. 

If the answer is no, you’ll need to look at key employees next. Who do you have within the agency that might be interested? There’s nothing wrong with training future leaders within your agency. In fact, this could be the perfect solution.

If there’s no one within your family or your agency, you begin the search externally. At this point, the focus becomes finding the right buyer in the insurance industry. 

So, make sure that the potential business owners have the same objectives and sense of pride as you. After all, they will be responsible for taking care of your clients and employees.

Is the Timeline for Your Strategic Plan Realistic?

Business continuity takes time if you want to do it right. Remember that you’re not just selling your book of business. You have to:

  • Locate potential successors 
  • Get your future leaders on board with the process
  • Know what your agency is actually worth
  • Perform due diligence on all facets of your current business process
  • Inform your insurance carriers that you do business with 

A business succession plan is so much more than just handing someone the keys and taking off for whatever is next on your bucket list. You’re doing this both for your retirement and to keep your business going so that future leaders can carry it forward. 

To keep things running smoothly for the insurance agency, key employees, and your clients, you owe it to everyone to take the time required to do it right. So, set a realistic timeline to start the succession planning process.

Do You Know What Your Insurance Agency Is Actually Worth?

For agency succession planning to be successful, you need to know the true value of your insurance business. And it’s not just a multiple of your revenue or commission.

Business owners and those interested in purchasing the business have a vested interest in knowing the true value of the agency. As an agency owner, your job is to maximize the worth of your agency. There are financial professionals that specialize in valuation. This is crucial because you and the buyer or potential successor may have very different ideas of what the agency is worth. So, make sure that your business succession plan includes the value of your agency.

Do You Have the Right Professionals in Place to Support Your Insurance Succession Plan?

The good news is that you don’t have to take on the entire process of creating this type of strategic plan on your own. As a matter of fact, I don’t recommend you do it on your own. You should hire qualified professionals to help you in the right areas. 

For example, the right legal team can help by reviewing the agreements required to complete the succession. An experienced succession consultant can help get you through the process. There’s absolutely no reason for you to go through the succession process alone. Doing so could actually lead to legal complications.

Do You have a Strategic Plan to Minimize Your Tax Burden?

You’ve worked long and hard to build your insurance business. One of the professionals you need on your side is a CPA. While part of the American dream is building a business and building wealth, it comes with a price attached. And another price is attached when the time comes to sell. That price is known as the capital gains tax. 

Make sure that you can keep as much of your hard-earned money as you can by partnering with a CPA. A CPA can help you by explaining the options you may qualify for so that you may be able to minimize the taxes you will have to pay when you sell.

Is Your Business Succession Plan in Writing?

Your business succession plan should be in writing. This can start in a very simple way: write out your first milestones. Identify your potential successors. As you move forward, you’ll want to ensure that your official insurance agency succession plan is in writing. Ensuring that the plan is in writing helps you and the successor know that you’re on the same page by eliminating misunderstandings.

Are Your Future Leaders in Training?

Your key employees who will remain after the succession takes place are the agency’s future leaders. They know how your agency operates. So, they’ll be a vital part of keeping things going smoothly after the change. You should begin training them now into leaders who are able to keep things running.

And if your potential successors are already working within your office, make sure that they are getting the proper training to take over. Remember that they won’t be made into excellent managers and business owners overnight. Make sure that they are also trained to develop future leaders out of employees and pour into others the way you are pouring into them.

Do You Have a Strategic Plan to Communicate Your Changes to Key Employees?

Agency succession is a big change for key employees. They need to be prepared for it. Start the visible transition early. Assure your key employees that they’re still needed and valued even though things are changing. Put yourself in their shoes as you put together your exit strategy. You’d want to know in advance that things are changing and that your job is secure.

Agency Leadership Starts Here

I hope you enjoyed reading this overview of creating a robust succession plan. While we didn’t go over the details of selling an insurance agency, you can learn more about that in detail here. While you’re exploring my site, make sure that you sign up for my mailing list. And drop me an email — I’d love to hear from you!

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