Red flag?? What do I do???

[NCAgent828]

I have made an offer and am negotiating a 100% seller financed acquisition. I will pay the owner over 6 years.

My question. The seller has mentioned buying the ownership over time. Basically if I pay 20% of the price I own 20% of the company. What are the red flags and issues that can come from this?

Owner is not involved with the business at all. I also want to acquire the agency so that it will be the same as mine.

 

[leevena]

Write the contract so that it reflects what you want. It essentially becomes a deal that has you owning it and the current owner financing it. See if that is acceptable.

 

[NCAgent828]

Ok, so make sure I own the book fully and he is financing it?

Does an agreement like that include a provision that says if I don’t pay then it becomes his again like a home or car?

If I change the name of the agency, how much will that effect the retention for contractors, bonds and commercial clients typically?

 

[LostDollar]

My question. The seller has mentioned buying the ownership over time. Basically if I pay 20% of the price I own 20% of the company. What are the red flags and issues that can come from this?

(Not an insurance agent.)

That seems to me to be a very dangerous situation for you to be in. As long as your ownership is under 50% it looks like your investment and business decisions could be at serious risk. When your interest goes over 50% you still face the possibility of challenge and interference.

The following is easy for me to say because I am not in the middle of the situation, but I think you would want 100% immediate ownership. If the agency has enough value to you, you may have to offer a premium in the price to obtain it. How much depends on your or your attorney's negotiating skills. If you can't do it with immediate ownership, I would suggest walking away.

As far as the name is concerned, one factor in that subject might be the recognition and value YOUR agency name has in the local market compared to the name of the agency you are looking at purchasing.

 

[NCAgent828]

(Not an insurance agent.)

That seems to me to be a very dangerous situation for you to be in. As long as your ownership is under 50% it looks like your investment and business decisions could be at serious risk. When your interest goes over 50% you still face the possibility of challenge and interference.

The following is easy for me to say because I am not in the middle of the situation, but I think you would want 100% immediate ownership. If the agency has enough value to you, you may have to offer a premium in the price to obtain it. How much depends on your or your attorney's negotiating skills. If you can't do it with immediate ownership, I would suggest walking away.

As far as the name is concerned, one factor in that subject might be the recognition and value YOUR agency name has in the local market compared to the name of the agency you are looking at purchasing.

Thanks so much for this input! I really appreciate it and it is good advice. I am becoming known I. My circles with my current agency name and the other agency name has been around for 20 years. They have walk ins and client base. I do need 100% immediate ownership. I will be hopefully be getting this resolved by mid week next week and have it all buttoned up. This is a unique situation so it has a lot of things spinning at one time.

1. I’m a new agent
2. His personal accounts make up 75% of the book
3. The woman who has ran it for 20 years will continue servicing his accounts
4. Because I’m a new agent I cannot get the financing needed to purchase without 100% seller note.

 

[adjusterjack]

I do need 100% immediate ownership.

Then insist on it or walk away.

His personal accounts make up 75% of the book

Make sure there's a non-compete, non-disclosure clause in the purchase contract. Traditionally, the selling agent remains with the company to service the business so it doesn't walk out the door as soon as he leaves.

The woman who has ran it for 20 years will continue servicing his accounts

There's no way of guaranteeing that unless you have a contract with her, too.

I’m a new agent

I strongly suggest you get a lawyer and an accountant, both experienced in insurance agency buyouts.

One "legal" mistake could cost you everything.

 

[NCAgent828]

Then insist on it or walk away.



Make sure there's a non-compete, non-disclosure clause in the purchase contract. Traditionally, the selling agent remains with the company to service the business so it doesn't walk out the door as soon as he leaves.



There's no way of guaranteeing that unless you have a contract with her, too.



I strongly suggest you get a lawyer and an accountant, both experienced in insurance agency buyouts.

One "legal" mistake could cost you everything.

My concern is finding someone locally. Is there a national service or a lawyer who may be in larger cities (Greenville, SC or Charlotte, NC?)?

I really appreciate the info. She knows the owner pretty well so I am going to make sure the Jon compete and non disclosure is in place for her and him. What does an attorney typically cost for something like this?

 

[leevena]

All these posts are good and bring up important points. Best way to write a contract is with the attorney, but as I mentioned earlier, you need to come to an agreement as to what you want and what the owner will allow.

 

[Warrior]

There are many lending companies that offer loans to buy a book of business. That would be a cleaner way to obtain the business, and not have the current owner play games with you.

If you choose not to get a loan, then get a lawyer who deals with this type of acquisition. The contract needs to be created where both parties are happy, but puts you as the 100% owner of the book of business. That is key. You wanting to take his agency, are you meaning his agency name? His location? Or just his book?
Remember this isn't personal it's business. You need to be shrewd and savvy where you come out ahead.
This agency owner may see a sucker coming and think he can take you for a ride.
Either he wants out of the insurance biz or he wants to stay in. You need to find out what he really wants.
I've seen an agent buy the agency outright. Then give for the next 5 years, the renewals of his old clients. But the new agent was an independent and after the transaction, he transferred all the book to different companies. He configured how much he would need to pay the old agent in 5 years, and paid him a lump sum to equal the renewals. So the new agent would not have to deal the the old agent for 5 years.

No matter how you do it, please have an attorney who knows contacts and knows insurance agency equity. So your not getting a deal that will cost you more in the long run.

 

[NCAgent828]

I would love to get a loan for this. Unfortunately I do not have the money to put down and I’m a new agent so nobody will give me the chance without a current book. It’s a really tight spot to be in.

The owner has never had an insurance license and only owns the agency because his business insurance is there and writes it off of his taxes.

Question. If I am 100% Owner, can I get a loan based on the book I will have after acquiring it? In that case I could pay it off quickly and be done with it.

Hoping to acquire into my book and leave the name behind.