Three Steps for Priming Your Agency for Acquisition
If you are building your insurance agency with the goal of being acquired, there are steps you can take to sweeten the pot by positioning the business for success and growth.
For owners who one day want to cash out, the most important thing is having a thriving agency with direction and a strong business plan, having relationships with other players in the market (including competitors) and knowing what your agency’s strengths and weaknesses are.
All of this will take some extra work on your part, but it will be well worth it in terms of not only making your business more attractive to potential buyers, but also helping your overall operations maintain resiliency and profitability. In other words, it’s good business either way.
If you are one day hoping to sell your agency, there are three steps you can take to lay the groundwork for an eventual acquisition.
- Have a strong business plan and direction
One of the keys to building and running a successful agency is to have a business plan and clear goals of where you want the agency to be in the next year, five years and 10 years. Your business plan should detail your agency’s strategy for achieving those milestones that you set. That said, plans can sometimes hit a wall and it’s important that your agency is flexible enough to pivot and make changes as it encounters obstacles. Sticking to a rigid plan can doom an agency during market disruptions, particularly during softening markets that may require you to change focus to other insurance lines that are holding steady or hardening.Having a plan and direction that helps grow your book and makes your agency strong and resilient is smart regardless of if you want to be acquired or not. Your plan should focus on increasing your revenues, expanding your capabilities and services and hiring the right crew to put your company on a growth trajectory and keep it there. If you have all this in place, you will increase your chances of being acquired and ensure that you have a sustainable and successful operation.
- Cultivate relationships
Just because you compete with another agency doesn’t mean you have to be an adversary. Instead, build relationships within your industry by participating in agency trade associations where you can network and gain insights into what other successful agencies are doing.Get involved with your local insurance agency association chapter, as well as the association’s statewide and even national events. Many of these associations and their local chapters also have a number of committees you can get involved with, which helps you further expand your network in the industry.The associations will also hold regular conventions, seminars and even retreats where you can press the flesh and engage with others in the industry. You might even make some friends along the way.Why is this so important for an agency that hopes to one day be acquired? Well, it’s most likely going to be a competitor that buys you. And by building these relationships now, you greatly increase the odds of one day being purchased.
- Do a SWOT analysis
One smart exercise to conduct at least once a year is a SWOT (strengths, weaknesses, opportunities and threats) analysis to identify the areas in which your company excels and what part of your operations you need to shore up.This way you can focus on doing what you do best (your strengths), while improving on the areas where you may be lagging in your industry and against your competitors (your weaknesses). As well, you should identify opportunities – holes your agency can fill that your competition may be neglecting.And finally, the analysis will help you identify any storm clouds (threats) that could put your operations or revenues at risk. This way too, you can build resiliency against those threats.This SWOT analysis should be a living document and you should discuss it with investors, your lawyers, advisors and partners. You can use these discussions to get input on how to best put your agency on a firm footing and growth path.Besides conducting a SWOT analysis for your agency, you should also do one for your main competitors. Knowing their strengths and weaknesses can help you better compete with them, and also position your company to take advantage of that knowledge.You can use these analyses to better position your agency as a possible acquisition by shining above the competition. And if you’ve also conducted a SWOT analysis on an agency that is looking to purchase your operation, you can use it to tell them how absorbing your agency will strengthen theirs.
- Have a strong business plan and direction
By following these three strategies, you can bolster your operations and resiliency and ensure you are on track to sustaining your profitability. The more profitable your agency is, coupled with a proven track record of sales growth year after year, the more it will be ripe for being purchased.