Buying an Existing Office

[dmccrostie]

Good morning and thank you for all the terrific information on this site. I am new to insurance but ran my own real estate business for 10 years. I am looking very closely at purchasing an existing book, around 600K in premiums. Obviously, I want to pay a fair price for this business and do not wish to get burned. I will have a contract and non-compete, and I have seen on this site where it is recommended I bring in a CPA to help me value the business. I have a CPA, but I wonder if I need someone very familiar to the insurance industry to help me, if so, how do I find that professional. Same question with an attorney. I understand that not all policies are equal in valuation and retention and quality - how do I determine that? I will also lease his existing office (he will stay on for a few months to assist in the transition). Well, that's about all I have. Am I covering my bases? See any glaring holes in my plan? Any help would be well appreciated.

Thanks!
Dave

 

[Newby]

CPAs as a rule don't know anything about insurance. But they know how to review the profit/loss statements of a business. You should never enter into ANY business purchase without a CPA and an attorney on your team.

 

[dmccrostie]

Newby, thank you for your response. Trust me, CPA and Attorney will be in place.

 

[scagnt83]

Newby is correct, CPAs as a rule have extremely limited knowledge of the application of insurance. Their knowledge of the business side of selling insurance and managing an agency is even more limited.


First, not all CPAs specialize in valuing a business. You need to make sure that you hire a CPA who is certified in business appraisals. Also, finding one who is a certified M&A (mergers & acquisitions) specialist will be helpful too. There are many specialist CPAs out there who hold both certifications.

Make sure that your attorney has experience in business transitions of this size as well.

I would recommend that you find an experienced agent to at least consult with you on the sale. Your best bet would be the owner of an independent insurance agency, or an experienced independent agent of some sort.
The catch is that they would need to be someone who does not work in your area. Most agents are not going to consult for a direct competitor.

The value of the agency will depend greatly upon the type of insurance it sells and has on the books. After you determine that, there are lots of variables that go into the valuation.

Is it a life & health agency or P&C? or both? do they do investments of any sort, have any assets under management?