If you are thinking about buying an insurance agency, there is a lot that needs to be taken into account. After all, this is a purchase that is a huge investment of money, energy, and time. With that in mind, we have put together a collection of five critical aspects to consider before proceeding.

  1. The diversity of the business – The first factor you need to take into account is how diverse the business is. Carefully assess the portfolio of the insurance firm you are considering. Some businesses are general, whereas others are specialists. If you are planning to run the company, you need to be comfortable with how it operates. Or, you need to be willing to make the changes that are required to get the company to a level you are happy with.

  2. Your market – The next factor to take into account is your market. You need to have a complete understanding of the current demand for the insurance products the business sells. Consider where the firm is situated, and how much business it does there. Is a lot of the business conducted over the Internet? If you are to get to grips with whether the profits are consistent or likely to shift, you need to have a thorough understanding of the market and how it has changed over time.

  3. The value of the agency – One of the most difficult parts of a negotiation is valuing the agency. Everyone is looking for the best deal for them, and so it can be challenging to strike a happy medium. Make sure you know exactly where profits are coming from and if the agency is indeed profitable. Look into the risk and financial management of the agency, as well as its history of sales, the quality of the employees, and the physical assets of the business.

  4. The type of purchase – What type of purchase do you intend to make? You don’t only need to think about the agencies you are considering, but you need to have a thorough understanding of your own financial capacity as well. Are you going to offer the owner finance and ask them to take a chance on you? Or, do you have financing in place so you can back a leveraged buyout?

  5. Your motivation – Last but not least, do not overlook one of the most crucial factors of all, and this is your motivation. You need to thoroughly understand your reasons for buying into an existing company before you actually do so. In addition to this, understanding the seller’s motivation can be highly beneficial. Are they retiring? Are they moving onto a new career? Or, are they getting out of a sinking ship? Thinking about their motivation will help you to determine whether the business is a sensible investment.

If you carefully consider the five points that have been mentioned above, you will be prepared when buying a small insurance agency.

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