Make smart choices to ensure your agency’s future

By Roger Sitkins

One of the really great things about owning an independent insurance agency is that you are independent! You can and do make choices every day that affect your agency’s performance and success, in both the short term and long term. In other words, you have options and you’re exercising them, some more purposefully than others. As we look forward to 2015, now’s a great time to examine some of the options you have concerning the future of your agency.

Option One: Keep Doing What You’re Doing.

There’s an old saying that I really like and often use: “If you always do what you always did, you’ll always get what you always got!” Another favorite of mine, courtesy of Albert Einstein: “The definition of insanity is doing the same thing over and over and expecting different results.” I’ve noticed that when agencies repeatedly do the same things, they ultimately wind up getting less. Their book of business slowly but surely declines, their cost of doing business continues going up, and in the final analysis, they make less. However, the good news is that they’re still making a lot more than the average person does! If you’re in a holding pattern like that, you’re on track to end up like the guy in the old Dunkin’ Donuts commercial who laments each morning that it’s “time to make the donuts.” There’s no energy or joy in what he does. His job is a daily grind and he’s just going through the motions. If you’re simply getting up and going to “work,” basically you’ve got a job. For many people, that’s okay (particularly if you’re an independent agent who’s not at risk of getting fired). In fact, it affords a pretty good lifestyle.

Option Two: Commit to Growth

As we’ve talked about before, you must have the Three Cs if you want to grow your business: Commitment, Capacity and Capabilities. You just have to find the right systems and guidance that will create predictable and guaranteed sales and profit improvements. Also, you’ll need to invest at least 2% of your revenue in these growth initiatives. The goal is to create the “Agency’s Way” of growing that all team members buy into.

Option Three: Shrink It and Initiate a Holding Pattern

In this scenario, you make the deliberate decision to shrink your business and go into a holding pattern. To me it’s an ugly option, but it is an option! Here’s how you do it:

• Eliminate the bottom 25% to 50% of your accounts. At best, this will represent somewhere between 5% and 10% of your revenue.
• To do this, you can either put them into a company service center and treat them with benign neglect or sell them off to a local competitor. Someone will always be willing to buy this business.
• Once you’ve done that, you eliminate about one-third to one-half of your staff—and then you coast! Just keep in mind that you can only coast in one direction.

Again, this is not my preferred option. I’m just trying to present some possible choices.

Option Four: Prepare to Perpetuate

Something we absolutely know is that everybody eventually leaves his orher business. Hey, I just did and it took me a long time to do so! But I chose to perpetuate part of my business, which requires meticulous planning.

Step 1: Get the boat ready to sell!

You may recall the story about the time my son Patrick and I wanted to sell our 16-foot flats boat and get a slightly larger one. Together we worked really hard to clean it up so that we could sell it quickly. Once we were finished, the boat was polished to perfection! It looked so good that Patrick (then a teenager) remarked, “Maybe when we get the new one we should pretend that we’re always going to sell it and keep it really clean like this all the time!” The moral of the story: Get the boat ready to sell!

Step 2: Choose your path.

Assuming you want to perpetuate, what are you doing to get the boat ready to sell? Remember, there are two types of perpetuation: financial and leadership. So determine the perpetuation path you want to take and stick to it.

Step 3: Start preparing now!

The time to prepare is NOT when you need to perpetuate.

Option Five: Sell to or Merge with a Local Competitor

In most cases, this is not the optimal choice. Not always, but usually. You might create some economies of scale, but you won’t necessarily create a great agency. The local competitor who wants toacquire your agency may not have the wherewithal to finance or cash out the transaction, making it likely that you’ll become “The Bank.” At the local level, cash buyers are rare, so if you agree to finance the sale, it’s always possible you’ll wind up with a bad loan. Although this may be the only option for smaller agencies, ideally it’s not the way to go. Merging with a local competitor, with the thought that one plus one equals way more than two, certainly can work very well. However, designing the agreed-upon model up front cannot be short-changed. Again, it’s an option.

Option Six: Internal Perpetuation

If you’ve been building the next generation of leaders and they’ve been purposefully putting money away for the transaction, that’s great! You’ve helped perpetuate the entire system! Again in this scenario, you are likely to be the bank, but do you have the faith that they can make it work and will pay you? If so, then this is a feasible option. As long as you have been developing the next generation of leaders in your agency, they should be established enough to easily make their debt service payments to you and successfully run the company.

Option Seven: Sell to a National or Regional Broker

With the influx of money from venture capital firms, the multiples have never been higher than they are today. So if you’re thinking about selling, now may be the perfect time to do so. Several of my long-time clients and friends have opted to take this route over the last few years, and it’s worked out very well. Some have sold, completed their earn-out period, taken the additional payout and then retired very happy! Others, including one I had lunch with the week before writing this article, sold out to one of the large brokerages, where he became a regional officer. As such, he’s in charge of finding other local agencies for his employer to acquire. With his expertise and their support, he’s free to go out and chase deals. And he loves it!

The Bottom Line

I’m sure there are other options you can explore, including a combination of the ones I’ve outlined. Even if you don’t expect to leave for another ten years or more, the bottom line is that eventually you will leave your agency. That’s why it’s critical to start planning and laying out your options today. Just don’t be like so many agency owners who procrastinate. Typically, either they wait too long and run out of options, or they leave behind a family with limited options because they never had a plan. Determine your options, make your choice and stick to it. Your future great agency—and your exit from it—are a matter of choice, not chance!

The author

Roger Sitkins is founder and chairman of Sitkins International, a private client group and membership program for some of the top independent insurance agencies and brokerages in the United States, Canada, and Latin America. Members participate in training, advising and networking opportunities focused around innovation, sales, growth, profitability and value. Sitkins International is inventing the future of the independent insurance system by providing intellectual property that empowers agents and brokers to become the innovators.

© The Rough Notes Company. Reprinted with permission.