What to Ask if You Are Considering Buying Another Agent's Business

The following article was written by Senior Marketing Specialists’ very own Vice President of Growth and Development, Dan Mangus, and was published in America’s Benefit Specialist magazine for October 2023.  

To access the full magazine and original article, click here. You can find this article on pages 14-15.

     In today’s competitive insurance market, looking for growth opportunities requires skill and creativity. One method being increasingly used is acquisition growth. It allows agency owners to quickly add large amounts of clients to their agency in short order.

     Acquiring blocks of policies can result in compound growth as your base of relationships widens. If you want to grow your practice by acquisition, there are questions you would do well to ask yourself and the prospective seller.

     Let’s begin by discussing some things you will need to ask yourself. All agencies, even those primarily dependent on referral business, have direct or indirect client-acquisition costs. You will benefit from understanding your current acquisition costs and the lifetime value of your average client. These figures will allow you to compare acquisition cost to your organic growth cost for the feasibility of your current operating profitability.

     Once you have determined how much you can pay to attain a new client and remain profitable based on their potential lifetime value, you can set thresholds for what you are willing to pay for each new client relationship. This would vary by client and policy details, but it will give you average numbers to work and build from.

     You will also want to examine your processes and effectiveness to realize the full financial potential of each client. An agent can accomplish this primarily through a thorough client needs analysis process. This analysis lets you and your clients expose any risks your products can effectively negate.

     It is also vital to be realistic about how many clients you and your team can adequately care for without endangering your brand and reputation. If you plan on growing, your infrastructure to support more people has to be in place. All of us want to see growth but, as a business owner, you have to be prepared for it. It is possible to succeed your way out of business if you bite off more than you can chew. Take the opportunity to talk with your team to see what challenges they would face with a large number of additional clients to care for.

     Everyone at your agency being on board with acquisition growth is key to a successful agency growth plan that involves buying other agents’ blocks of business. It is also vital to verify that both your carrier contracts and the sellers can align for the assignment of commissions and agent-of-record changes that would be involved. Finally, it would be best if you were sure that you have the financial means to proceed without creating undo stress on yourself and your agency. Your growth should be a process you can enjoy without being a distraction from critical activities in running your agency.

     What kind of questions should you be asking the seller? You will need to understand details about their business that can be uncomfortable for the seller to answer without a high level of trust. I highly recommend giving the potential seller a non-disclosure confidentiality agreement to make both parties feel comfortable and secure during the exploratory phase. That way, they can relax in sharing client and financial information with you. This will also demonstrate to them that this is a serious matter to you and that you want them to feel secure with everything you will be doing as a potential buyer.

     Ask the seller about the number of clients they have and their location. Location information becomes vital as you examine compatibility with your ability to service the clients and the state licenses and carrier contracts you will be required to have to receive commissions on those policies. Some state laws also make it very easy for clients to switch plans, which can diminish their appraisal value.

     You also need to understand the product line mix and the business mix by each carrier. Find out if they are incorporated and, if so, whether all carriers are contracted through that corporation. It is important to note that some carriers will not allow an agent to transfer commissions if the contract is under a Social Security Number instead of a tax ID number. Learn about all their agency processes, financial obligations, sub-agent agreements and any other legal agreements they have that could be tied to the policy commissions you are purchasing.

     Lastly, understanding their expectations before, during, and after the transition gives you and the seller the best chance for success. Get to know as much as possible about their business. They are selling you what they built in the past, and you are buying what you can build with it in the future. You will have to know what you have to build with.

     If done properly, acquisition growth can be a beautiful compliment to your organic growth. Be open and honest with yourself, and only work with a seller that will be open and honest with you.

Dan Mangus Senior Marketing Specialists

Dan Mangus joined Senior Marketing Specialists in 2012 as our National Sales Director, serving over 10,000 agents nationwide. He teaches Medicare courses at universities and keynotes national insurance conferences. He also conducts Medicare certification courses for both the National Guardianship Association and the American Association of Daily Money Managers. Dan has published numerous books and articles for advisors in the Medicare market.


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