How to Correctly Valuate a Book of Business for Purchase?

[justinbbert]

An agent reached out looking to sell his book as he's creeping into retirement.He hasn't disclosed any hard numbers and probably won't till I'm serious about a purchase so we'll have to use hypothetical numbers. My best guess is probably about 1.5MM - 1.7 in premium.If we do a conservative estimate on commission, he's probably looking at about $150-170Kish annually in commission.
I don't plan on retaining his staff or his office.To my understanding, once you purchase a book, you're bound to have bleeding the first year or so. How severe, no one knows. With non-renewals so prevalent these days, it also could pose a big headache.
The biggest issue is his initial ballpark offer. He said he received an offer but is willing to sell to me if I can slightly beat it. He said he received an offer of roughly 50K for 9 years.
For a 1.5MM-1.7 book, is this offer worth it or is this something that would cause more issues in the future?

I'm in the DMV area so we're not at risk (at least yet) for carrier pull outs but I know non-renewals are absolutely bonkers right now. Even if I have an idea of non-renewals in the next 90 days, that won't paint an accurate picture for jeopordized accounts in the latter half of 2024. I just don't know how to safely navigate these waters.

 

[Kevin B Young]

Following

 

[adjusterjack]

He said he received an offer of roughly 50K for 9 years.

Tell him to grab it.

He may be lying. (Like the people who tell me how much they were offered for their car when it isn't worth anywhere near that. LOL.)

$450,000 on commission income of $150k to $175k? With the current crisis you are likely to have 50% attrition in the first year or two and downhill from there.

In the purchases back when I was an agent, the selling agent stayed with us for several years servicing the accounts during the transition. When my friend sold his agency he had to continue servicing his book for 5 years during the transition.

Is your prospect willing to do that?

Clients faced with new people suddenly handling their insurance will have no loyalty to the new people and you could end up losing them in droves.

I'd want a sliding scale based on the commission income if I was going to start with $50k per year. Commissions come down, payment to him comes down commensurately. Is he willing to do that? My guess is not.

 

[marindependent]

I find myself asking one question more than any other question on this forum: What State are you In? and...what type of insurance is this? As specific as possible please.

 

[adjusterjack]

Same problem on all the sites I'm on. Should be mandatory to list location when registering or the registration stops and doesn't go any further. And the software puts the location in the initial post or title.

 

[liamnoah]

An agent reached out looking to sell his book as he's creeping into retirement.He hasn't disclosed any hard numbers and probably won't till I'm serious about a purchase so we'll have to use hypothetical numbers. My best guess is probably about 1.5MM - 1.7 in premium.If we do a conservative estimate on commission, he's probably looking at about $150-170Kish annually in commission.
I don't plan on retaining his staff or his office.To my understanding, once you purchase a book, you're bound to have bleeding the first year or so. How severe, no one knows. With non-renewals so prevalent these days, it also could pose a big headache.
The biggest issue is his initial ballpark offer. He said he received an offer but is willing to sell to me if I can slightly beat it. He said he received an offer of roughly 50K for 9 years.
For a 1.5MM-1.7 book, is this offer worth it or is this something that would cause more issues in the future browse this site.

I'm in the DMV area so we're not at risk (at least yet) for carrier pull outs but I know non-renewals are absolutely bonkers right now. Even if I have an idea of non-renewals in the next 90 days, that won't paint an accurate picture for jeopordized accounts in the latter half of 2024. I just don't know how to safely navigate these waters.

I have very little knowledge in business sale and valuation. I am just looking for a very general guide on valuing a business. I read somewhere, that a simple rule is 5 times the business turnover. So, let's say you had a business that had no debt, no major overheads, and very little stock, let's say it was a knowledge based industry like "Accountancy" or "Graphic Design" or "IT Support Service", and let's say it was getting 10 new customers walking through it's door every day. So if that business had a turnover of £100K, using simple numbers, would it's business value be around £500K?

I realise business value's can be complex etc. But I am looking to use a very simple formula to get a general idea of value.

Thank you.

 

[PrivClientSG]

Very simple is where you will get yourself into trouble. Very little knowledge will get you into a lot of trouble. A life book is one thing. A PC book is something completely different. And so on. Get all the facts, details, terms and conditions. No very simple at all. Once you get all the details, make some phone calls to veteran producers you know. Good luck.

 

[Allen Trent]

$450,000 on commission income of $150k to $175k? With the current crisis you are likely to have 50% attrition in the first year or two and downhill from there.

You are not factoring on interest on the loan. 450k is total payments over 9 years. At a current 8-10% commercial loan rate that would make the purchase only $306k. If revenues are 150k, that is only 2x gross revenue . Not a bad price on average, but likely need to look deeper at current lapse rate, new writings, expenses