The best time for a health insurance broker to sell and retire is very personal. Key considerations include industry and economic trends as well as health concerns. Most of the brokers we work with are looking to sell within a short time period. The more time one has to plan their succession the higher the price they will receive and the better the transition will be for the buyer.
BY PHIL CALHOUN, MBA
If you think your book of business is too small or perhaps too large for buyers consider this: in 2018 over 10,000 businesses were sold. For insurance agencies, deals averaged $104,000 in annual commission and the buyers considered mid-sized agencies ranging from $1.2 to $5 million. With the average annual commission total at around $100,000 it is likely you will find a buyer even if your annual commission totals less than $100,000. Any amount higher becomes highly attractive to mid- sized buyers.
As far as timing goes, begin your transition planning at least one year and at best 5 years out. Most business brokers tell owners to give the planning process 3 to 5 years. We suggest health brokers who want to stay active start the planning process with a commission protection agreement and include a purchase price in the agreement. Many brokers love what they do and over time they ride out their commissions. Over a short time, they end up with a fraction of what they once had. We have seen brokers who end up with $2,000 a month but had $10,000 a month just a few years prior. Doing the math at a value of three times the annual, the difference is huge: $72,000 versus $360,000 which leaves $288,000 on the table. What complicates many plans is illness and the impact on staying current with clients and carrier changes.
From what we have seen it is best to have an “inside” buyer or one lined up. Usually someone who is your active successor will protect your health commissions. This is the best one to work with as they know you and your business. They have an idea about your clients and are lined up with the carriers you work with. If you do not have employee successors, you will need to look for someone to pick as a successor. Check out our website or mail me for a Successor Tip Sheet.
In general, the options for brokers without a successor or a buyer is to:
- Continue to run the business. Instead of retiring, you would ride out the commissions with no intention to retire and eventually leave the commissions to your estate. Know the commissions will not last long, so this is not a best or viable solution.
- Dissolve your business. With no competent leadership or successor identified you will dissolve the business and sell the assets. This also is not a best or viable solution as it will leave you with limited revenue.
- Sell the company with a liquidity This will most likely create a less than desirable payout, an insignificant retirement income, and no stability for potential heirs of your estate.
To avoid these solutions and plan for a better result, take the time to prepare. Speak with your carrier rep colleagues, association friends, or FMO and GA contacts. Now is the time.
To prepare, the key items you need for a sale are:
- Know the agreement terms you need to have, those you hope to have, and those you wish to have. Deal breakers fall into “need to have.” Get everything in writing so nothing is assumed
- Prepare a detailed report including your commissions paid by carrier and insurance Buyers need to know what they are buying and may not want certain lines of business.
- If you have staff, you will need to have employment agreements in place to hold key employees through the Incentives you can afford that will assist with client retention is vital.
- Prepare a client communication plan that leans into your retirement and gradually communicates your planned This process should take six months minimum. It progresses from an affiliation with the agency (buyer) to help you help clients, to joining closer with the agency to offer more resources.
- Transfer of commissions takes patience and persistence as carriers are likely to stall through errors or Determine what the buyer will pay to facilitate the transfer.
PHIL CALHOUN earned his MBA from California Polytechnic University Pomona in 1984. He began his career in health care and started his first insurance agency in 1993. He helped launch Golden Outlook, a private label Medicare HMO. He sold his FMO in 2016 to focus his efforts on educating brokers on commission protection and growth through acquisition. He operates Integrity Advisors in Tustin and his book, “The Health Insurance Broker’s Guide: How to Protect, Grow and Sell Your Commissions” which launched in 2020 is available free online at www.healthbrokersguide.com