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I Know My Agency’s Value – Now What?

Agency owners often wait far too long to learn the value of their agency. This delay is due to many factors including time, cost, fear, and the worst of all – they really don’t think that they need to know their agency's value.

The value of your agency is more than just a number. Determining your agency's value gives you the opportunity to work on your business. Over the past 8 months, I have completed more than 50 agency valuations. Here are the most common actions that agency owners take to maximize their agency after they discover what is driving their agency's value.

5. Re-evaluate Your Carrier Strategy

Concentration with one carrier creates risk inside an agency. If an agency’s lead carrier changes their compensation, appetite, or rates the impact to an agency can be significant. Many agency owners take a closer look at their carrier strategy as a result of going through the valuation process and explore alternative options. In addition, those agencies that are spread too thin across many carriers explore implementing a strategy to maximize their carrier relationships by focusing on areas that will allow them to place business with key carriers and put themselves in a position to be eligible for contingency. By focusing on a carrier strategy, and agency owner can reduce their risk over time as well as relieve some pressure on their staff who may be struggling to keep up with too many carriers.

4. Put Producer and Employee Contracts in Place

Having a high concentration of your book with a single producer or account manager creates risk. There is even more risk when there is not contract in place with that employee. Agency owners that work to put in producer and employee contracts that define and protect trade secrets and also include non-compete and non-piracy language can mitigate their risk in this area. While the risk of losing business when a person leaves your agency still exists, these contracts if written appropriately can give the agency some recourse and also prevent an employee from attempting to take their customers with them just by making clear what the cost of this action would be. Any agreements that are put in place after the employee after the hire date will require consideration for executing the agreement.

3. Compensation Plans

The largest controllable expense inside an agency is payroll. An agency’s staff is their most valuable asset and their biggest expense. Depending on the size of your agency, compensation and benefits will use over half of the agency’s resources. Understandably, this is an area that is most often adjusted in the valuation process. Many times, compensation plans are not tied to agency production causing the compensation to become out of proportion. It is difficult for an agency to invest in marketing, technology or additional staff when their current compensation plans are not healthy. Working to implement compensation changes requires time, great communication and a clearly defined pathway to success to do it correctly.

2. Reallocating Resources

Part of the valuation process includes creating a pro forma financial statement that takes into consideration what the standard industry benchmarks are for main categories of expenses inside an agency. An agency owner that is not familiar with these benchmarks is able to easily see the areas where they are both over and under allocating resources. This is an incredibly valuable exercise and can uncover opportunities of where reallocations can be considered to invest in the areas that will drive growth and/or efficiency n the agency.

1. Document a Perpetuation Plan

The number one action taken by an agency owner after going through the valuation process is documenting a perpetuation plan or putting a buy-sell agreement in place. Not having a plan for your agency is the number one risk especially for agencies that have a single owner past the age of retirement. Taking steps to formalize and document how the agency will be operated or sold should something happen to the current owner will minimize the risk and uncertainty that exists when a sudden life event occurs. Far too often, when an agency does not have a documented plan or agreement in place, confusion creates a delay and the agency is at risk of losing business while a plan is figured out, causing the agency value to decline.

While it’s impossible to eliminate all risk inside an agency, those that the time to understand the factors that are impacting the value of their agency have the power to take action and maximize their agency value.

For more information, visit or contact Carey Wallace at [email protected]

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Carey Wallace

Agency Finance and Valuation Consultant