InsureTexasNow
Expert
- 21
We are looking at buying another agency. What is a decent ROI? I am thinking 3 years. Anyone have experience or helpful info.
Buying an Agency..ROI Timeframe?
- Thread starter InsureTexasNow
- Start date
- 561
If you're paying 3 times annual revenue, then about 3 years is correct.
- 11,997
Lot of pieces on this. How big is the book? What are operating expenses?
Not to be snarky, but haven't you run the numbers yourself? I wouldn't make that type of an investment without knowing the numbers intimately.
Not to be snarky, but haven't you run the numbers yourself? I wouldn't make that type of an investment without knowing the numbers intimately.
- Thread starter
- #4
InsureTexasNow
Expert
- 21
About 130,000 revenue. It will take near 100% of that for 3 years to pay off the owner and operate the business. Just wondering if that is normal. My office now can service it so no need for additional employees. 3 years no profit normal or bad.
G
Guest
Guest
WHat kind of policies?
Commissions are different, so ROI will vary depending on that
Commissions are different, so ROI will vary depending on that
- Thread starter
- #6
InsureTexasNow
Expert
- 21
P&C. Agency has been around 130,000 for 6 years. No growth over 90% retention. Owner wants to stay on for a couple years. Rare but I think it will help with retention during transition. She wants salary plus buyout for 3 years.
- 11,997
Owner staying around and a small book that's not growing are three flags to me. I think what she wants is more than it's worth.
- Thread starter
- #8
InsureTexasNow
Expert
- 21
I would agree however I bought one 2 years ago and have grown it by 100%. It is probably giving me some false confidence. She is asking a fair price. The sticking around is not ideal but I can't be in the office there so I need someone and I do trust her. I just can't spend as much time growing it since my focus Is elsewhere. Still I am wandering, is a 3 year payoff normal?
- 11,997
In my limited experience with P&C books, it's not the 3 year number that matters, it's the percentage of renewals. If you have about 130k/year in renewals then the book is probably worth somewhere between 1.5 and 2.5 times that as a starting point.
I'm not going to dog the whole deal, but here is what I would be concerned with if I was you and why.
It's a small book. As you said, you can't be there managing it and there is something to be said for that. Most agents will shy away from small books altogether or merge the two. Obviously there are some problems with doing that depending on the geography/contracts, but that's a consideration and it certainly hurts her ability to sell it to someone else.
Let's talk about the her sticking around piece. Is she going to expect a commission plus salary? What does she think the renewals should be paid out at? If she decides to show up for an hour every other afternoon and play golf the rest of the time, will you be able to fire her?
How do you know what the book will even look like in three years?
If she doesn't want to sell it for three years, she should keep it.
To go back to your question of "is this normal?", the answer is no. Even if it was normal, it's bad business. She wants you to assume the financial risk, guarantee her a salary, and have you pay her for the privilege. It sounds like a great deal for her, but is it a good deal for you? Methinks not so much. If you want to PM or e-mail me the specifics of the deal (numbers) because you don't want to be public about it, but want more accurate advice then go for it.
I'm not going to dog the whole deal, but here is what I would be concerned with if I was you and why.
It's a small book. As you said, you can't be there managing it and there is something to be said for that. Most agents will shy away from small books altogether or merge the two. Obviously there are some problems with doing that depending on the geography/contracts, but that's a consideration and it certainly hurts her ability to sell it to someone else.
Let's talk about the her sticking around piece. Is she going to expect a commission plus salary? What does she think the renewals should be paid out at? If she decides to show up for an hour every other afternoon and play golf the rest of the time, will you be able to fire her?
How do you know what the book will even look like in three years?
If she doesn't want to sell it for three years, she should keep it.
To go back to your question of "is this normal?", the answer is no. Even if it was normal, it's bad business. She wants you to assume the financial risk, guarantee her a salary, and have you pay her for the privilege. It sounds like a great deal for her, but is it a good deal for you? Methinks not so much. If you want to PM or e-mail me the specifics of the deal (numbers) because you don't want to be public about it, but want more accurate advice then go for it.
- 159
I have talked with a lot of guys that have bought P&C books and I have never seen anyone pay 3 times....2 times is the most I have seen and the norm being 1.5 times the renewal. I think 3 times is too much for a P&C book.
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