Buying my Fathers Agency - New to Insurance - Looking for General Advice

[LostDollar]

And yes, I am playing devil's advocate in most of this. Hopefully the OP goes into this with eye's wide open and makes sure to avoid any dangerous pitfalls.

You two's exchanges above increase my concern for op. I think he is, so far, flunking in regard to your hopes.

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(And an initial loss of 10%-20% of business would leave him really hopping right at the start.

And if the 80-20 rule applies to premium income in this type of business, the risks from client departure are even greater than might be immediately apparent.)

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(And if this is a small town, "hiddenness" of father's hidden presence should last for less than a week.)

 

[xrac]

Because of the 20 year pay out it sound like an o.k. deal not a great deal. No one else would agree to a 20 year payout. If his father is in good enough health and not too old he should look at buying a life insurance policy on dad and dad should definitely have a policy on the OP. The dad could be protected by a 20 year term for $400K which should be affordable.

It also sounds like the OP is going to really have to hustle to make this a worth while adventure. However, $20K a year doesn't sound bad considering he has carriers and a book of business. A lot better than scratch but I have never started a P&C agency or ever bought an agency. Just my gut based upon what little I know.

 

[CrainGroup]

Not sure if this helps, and probably a hard conversation to have with Dad, but that price is seems high for an agency in Tennessee. I am in East TN and typical agencies sell at 1.5-1.75 times revenue. Also, as previous posts have discussed, there is a possibility the current carriers will not be willing to extend the contract to new owners. I would get that confirmed before making the move.

 

[shawnmwalker]

I like where VOlAgent is going with all this. Take heed. Dad is asking too much. I don't think he is trying to hurt you but he ain't doing you any favors.


The Employee- Got to go. Stuck in their ways. and old school.


The Dying clientle- Not worth the price.

Main carriers? Non Standard or Preferred? If Preferred 1.8x. If NS: 1x at the very best.

When was his last bonus?
Tough time to get in the industry Auto being what it is. but WP is on the rise. Could be an immediate boost in the agency income if you can retain.

when was the last year the agency grew? (Big question) I bet it has been declining for years.

When I read the headline I thought, "man I wish my dad had built something like this for me" but after reading it through, not so much.

Your dad will want to get paid as well and play the old man role in the agency. (6 months tops- don't let him stick around). The whole time you will want him to sunset and get out so the changes can begin. Too often the son is too nice to dad and money is lost because nothing changes until he is gone. In reality, once you buy, he can't have a desk anymore. Get him out of there so the changes can take place.- I've seen that too many times.


Tough topics to address with dad's life work- and the business he created to pay for Band camp, that amazing house you had, your summer football program, or that family vaca to Europe, but this is your life. You got to ask all the hard questions and set the expectations before purchase.

Where did the OP go?

 

[jrdnrabbit]

For what it's worth, the present value of $20k each year for the next 20 years is only ~$249k (assuming 5% discount rate....$298k at 3%....$212k at 7%).

 

[VolAgent]

For what it's worth, the present value of $20k each year for the next 20 years is only ~$249k (assuming 5% discount rate....$298k at 3%....$212k at 7%).

Thanks for the calculation, I knew it would matter but didn't feel like doing it myself. Of course, that is a long time and there has to be some way to handle it if the agency goes under for whatever reason.

It seems like the OP has disappeared, so it may be a moot point.

 

[cylon58]

The 20 year payout is a bit long. Also with 159k in revenues and to pay 400k is on the high side. You will want to make sure all parties are clear as to what happens if in 5-6 years the business is mostly gone ? I would rely on your father and brother for help seeing you have no experience in the insurance business . Good Luck to you.

I'll speak with him about this. Also, this includes the building, which has an apartment attached. The value of the building is around $75000.

Thank you for the response.

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Disclaimer I don't do P&C but sell medicare

However 90K seems low as far as profit for an agency that has been around, I am willing to bet your Dad has been going at a slow pace as retirement has been on his mind & probably hasn't been hungry for some time

I would do learn the buis, I bet you could really expand customer base if you are hungry

You are correct, he has been mostly focused on golf the last few years! The carrier is definitely a preferred carrier (though I hesitate to say which, I have no clue if being identified could have potential downsides). Even as is, his growth with the main carrier has been positive every year for the past 5 years.

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Its a small book judging by the revenue, probably a little over $1 million to as high as $1.5 million in premium. It would depend on the mix of business, comp percentages and if profit-sharing, if it even qualifies, is included.

90k profit on 159k in revenue isn't bad. Sounds like a CSR, office space, insurance and office supplies. There may be some room to cut that down and allocate the money to marketing.

However you are right, dad has been coasting for a loooong time. The sad thing in, I bet the book is full of older clients. Very few that are new to the agency or younger in age. It will only continue to decline without some life, and the OP is going to need to take even more of that profit to invest in marketing to grow again.

The only way 400k makes sense is because it is spread over 20 years. Otherwise the OP would almost certainly be massively overpaying for this agency. Finally the OP will need to look at the staff member, how stuck in the mud is he/she, can the CSR adapt to newer technology or is the person a dinosaur?

I would be curious to see what the agreement says if the agency goes under, and there definitely better be an agreement. It is extremely unlikely dad could sell the agency for this price in an arm's length transaction.

I suspect dad is looking at the OP as a retirement plan. This may or may not be in the OP's best interest.

Correct, it is a single licensed CSR, insurance, utilities, etc., however the building is owned and included in the asking price (about $75K value).

The 400K price is not set in stone. When I move in August he is going to immediately give me control of the finances and all decision making. He thinks there are going to be ways for me to save money which he just didn't care to implement, as well as lots of new business potential (he hasn't really went looking for new business in a long time).

The CSR is licensed and is runs the office by herself whenever he is not there (golf, travel, etc.). I think she will be great to keep around so that I can focus on staying on the road as much as possible trying to create new business. She is smart and open minded, and is willing and able to learn anything I care to teach her.

There has not been any official agreements drawn up yet. We are going to leave the business in his name until I get appointed by the preferred carrier (which can take 9 months or more I am hearing). Once I get moved we are going to go over everything with his CPA and a lawyer to determine the best way to move forward. He will still the be owner operator on paper until everything can transition smoothly, but the commission checks will be mine.

I know this sounds crazy, but I trust my father 100%. He knows I would not leave my job without being certain I can still pay my bills. There is no possibility of him purposefully doing anything negative to me. With that said, neither of us are yet certain how to best make this happen, and will be consulting the appropriate people to help us make this successful.

 

[xrac]

I'll speak with him about this. Also, this includes the building, which has an apartment attached. The value of the building is around $75000.

Thank you for the response.

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You are correct, he has been mostly focused on golf the last few years! The carrier is definitely a preferred carrier (though I hesitate to say which, I have no clue if being identified could have potential downsides). Even as is, his growth with the main carrier has been positive every year for the past 5 years.

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Correct, it is a single licensed CSR, insurance, utilities, etc., however the building is owned and included in the asking price (about $75K value).

The 400K price is not set in stone. When I move in August he is going to immediately give me control of the finances and all decision making. He thinks there are going to be ways for me to save money which he just didn't care to implement, as well as lots of new business potential (he hasn't really went looking for new business in a long time).

The CSR is licensed and is runs the office by herself whenever he is not there (golf, travel, etc.). I think she will be great to keep around so that I can focus on staying on the road as much as possible trying to create new business. She is smart and open minded, and is willing and able to learn anything I care to teach her.

There has not been any official agreements drawn up yet. We are going to leave the business in his name until I get appointed by the preferred carrier (which can take 9 months or more I am hearing). Once I get moved we are going to go over everything with his CPA and a lawyer to determine the best way to move forward. He will still the be owner operator on paper until everything can transition smoothly, but the commission checks will be mine.

I know this sounds crazy, but I trust my father 100%. He knows I would not leave my job without being certain I can still pay my bills. There is no possibility of him purposefully doing anything negative to me. With that said, neither of us are yet certain how to best make this happen, and will be consulting the appropriate people to help us make this successful.

It sounds to me like if the building is including in the deal that it is more than fair for you and you have good potential to grow the business.

 

[cylon58]

It sounds to me like if the building is including in the deal that it is more than fair for you and you have good potential to grow the business.

Thank you, that is certainly confidence inspiring.

I think this thread went away from the topic I intended. I am not concerned at all whether this is a good deal, or whether my father is trying to dupe me. I know there is great potential, provided I work hard.

The question I asked was if anyone had any good advice. Maybe things like "read XXX.com article about P&C marketing strategies" or "Focus on commercial P&C at first to generate some bigger commissions".

Don't get me wrong, I feel like I have learned something from every reply (since I know nothing other than what was on the state exam), and I truly appreciate everyone taking the time to chime in here!

 

[xrac]

Thank you, that is certainly confidence inspiring.

I think this thread went away from the topic I intended. I am not concerned at all whether this is a good deal, or whether my father is trying to dupe me. I know there is great potential, provided I work hard.

The question I asked was if anyone had any good advice. Maybe things like "read XXX.com article about P&C marketing strategies" or "Focus on commercial P&C at first to generate some bigger commissions".

Don't get me wrong, I feel like I have learned something from every reply (since I know nothing other than what was on the state exam), and I truly appreciate everyone taking the time to chime in here!

I am not a P&C agent but I do have experience in business. First, I would get everything in writing ASAP so there are no misunderstandings. Also so if something should suddenly happen to your Father you have some protection. Second, if your father is in good enough health and not too old you should look at buying a life insurance policy on him and your dad should definitely have a policy on you. If your dad were to pass unexpectedly this would give you the means to pay off the indebtedness which might be valuable to your mother or whomever is the heir other than yourself. I would be sure that I consult a lawyer experienced in buy/sell agreements to draw up the contract.

If you are doing P&C the one thing you need to do is find out as many X-dates as you can. When you are talking to people see if they will give you their x-date and permission to call you before that time to quote them when they renew. You can do this by cold calling, by door knocking, by networking, etc. I don't think that most print advertising yields a great return.

I always thought there is a lot of valuable information about P&C here https://www.agencyequity.com/.