Buying my Fathers Agency - New to Insurance - Looking for General Advice

cylon58

New Member
18
I've been reading through the forums here and have found lots of great information. I don't have any specific questions yet, but thought I'd explain my situation (it feels somewhat unique) and see if anybody has any good advice.

I live and work in Texas. My father owns an independent agency in TN. He is 66 and I am 36. I worked with him for a few months 5 years ago, but really have no experience with insurance.

Dad wants to retire, and I think it would be a good idea to buy his agency from him and move with my fiance to TN. Currently, I would have to move every few years to continue advancing my career, and my fiance has a somewhat specialized degree (digital and fine arts) that I feel would make it difficult for us to keep moving and have success finding good jobs in the same areas (to advance our careers). I have discussed this with both my fiance and my father and we have all decided that me purchasing his agency would allow me to grow my income over time without the need to move. It would also allow my fiance to work toward her goal of business ownership (in the art world).

His agency had commissions totaling $159K last year (before any bonus). He has 1 employee (licensed and salaried) and his total operating expenses came to around 70K. This leaves 90K in profit. He wants to self finance the purchase at around 20K per year (total of around 400K). This leaves me 70K as a starting figure. I currently make 55K so this sounds like a nice raise assuming the same commissions next year. The majority of his business is P&C.

Dad says he would like to work with me for a year or so (at least part time) to give me time to meet his clients with him around, and to help me learn the business. Also, my brother in law has an agency with the same company about 100 miles away, and has told me he will always be there for advice. The agency has an apartment attached that we are planning on turning into an office so he can be present without everyone who walks in the door asking for him instead of me (he can park behind the building and essentially hide in this office).

I am in a lease in TX until August 1st, so that is the date I am planning on moving to TN. My goal is to take the pre licensing course for P&C in March, and drive to Memphis as soon as possible after completing the coursework to take the exam at Pearsonvue. I will then wait until August to apply for the license (so I am a resident of TN).

OK, I feel like I'm starting to ramble... If anyone has any advice I'd love to hear from you. I'm a little anxious, but also very excited about all this!
 
I am not an agent.

What you have described is likely not a unique situation in the American business world.

You want to buy a family business from a family member.
You want to become an insurance agent.

Your post talks about you spending/expending your life efforts to meet a life benefit for your father and another for your fiance. What are you getting out of it?

Can you run a business? Can you handle the responsibility and the discipline of meeting the electric bill, paying an employee and putting up with the same people in the same town day after day after day?

Family businesses have some challenges. Will you learn from your father, can you work with him?

What makes you think you will be the insurance agent that does not fail and disappear?

Just some things for you to consider as you work out a plan for going forward?
 
I've been reading through the forums here and have found lots of great information. I don't have any specific questions yet, but thought I'd explain my situation (it feels somewhat unique) and see if anybody has any good advice.

I live and work in Texas. My father owns an independent agency in TN. He is 66 and I am 36. I worked with him for a few months 5 years ago, but really have no experience with insurance.

Dad wants to retire, and I think it would be a good idea to buy his agency from him and move with my fiance to TN. Currently, I would have to move every few years to continue advancing my career, and my fiance has a somewhat specialized degree (digital and fine arts) that I feel would make it difficult for us to keep moving and have success finding good jobs in the same areas (to advance our careers). I have discussed this with both my fiance and my father and we have all decided that me purchasing his agency would allow me to grow my income over time without the need to move. It would also allow my fiance to work toward her goal of business ownership (in the art world).

His agency had commissions totaling $159K last year (before any bonus). He has 1 employee (licensed and salaried) and his total operating expenses came to around 70K. This leaves 90K in profit. He wants to self finance the purchase at around 20K per year (total of around 400K). This leaves me 70K as a starting figure. I currently make 55K so this sounds like a nice raise assuming the same commissions next year. The majority of his business is P&C.

Dad says he would like to work with me for a year or so (at least part time) to give me time to meet his clients with him around, and to help me learn the business. Also, my brother in law has an agency with the same company about 100 miles away, and has told me he will always be there for advice. The agency has an apartment attached that we are planning on turning into an office so he can be present without everyone who walks in the door asking for him instead of me (he can park behind the building and essentially hide in this office).

I am in a lease in TX until August 1st, so that is the date I am planning on moving to TN. My goal is to take the pre licensing course for P&C in March, and drive to Memphis as soon as possible after completing the coursework to take the exam at Pearsonvue. I will then wait until August to apply for the license (so I am a resident of TN).

OK, I feel like I'm starting to ramble... If anyone has any advice I'd love to hear from you. I'm a little anxious, but also very excited about all this!

The 20 year payout is a bit long. Also with 159k in revenues and to pay 400k is on the high side. You will want to make sure all parties are clear as to what happens if in 5-6 years the business is mostly gone ? I would rely on your father and brother for help seeing you have no experience in the insurance business . Good Luck to you.
 
Disclaimer I don't do P&C but sell medicare

However 90K seems low as far as profit for an agency that has been around, I am willing to bet your Dad has been going at a slow pace as retirement has been on his mind & probably hasn't been hungry for some time

I would do learn the buis, I bet you could really expand customer base if you are hungry
 
Disclaimer I don't do P&C but sell medicare

However 90K seems low as far as profit for an agency that has been around, I am willing to bet your Dad has been going at a slow pace as retirement has been on his mind & probably hasn't been hungry for some time

I would do learn the buis, I bet you could really expand customer base if you are hungry

Its a small book judging by the revenue, probably a little over $1 million to as high as $1.5 million in premium. It would depend on the mix of business, comp percentages and if profit-sharing, if it even qualifies, is included.

90k profit on 159k in revenue isn't bad. Sounds like a CSR, office space, insurance and office supplies. There may be some room to cut that down and allocate the money to marketing.

However you are right, dad has been coasting for a loooong time. The sad thing in, I bet the book is full of older clients. Very few that are new to the agency or younger in age. It will only continue to decline without some life, and the OP is going to need to take even more of that profit to invest in marketing to grow again.

The only way 400k makes sense is because it is spread over 20 years. Otherwise the OP would almost certainly be massively overpaying for this agency. Finally the OP will need to look at the staff member, how stuck in the mud is he/she, can the CSR adapt to newer technology or is the person a dinosaur?

I would be curious to see what the agreement says if the agency goes under, and there definitely better be an agreement. It is extremely unlikely dad could sell the agency for this price in an arm's length transaction.

I suspect dad is looking at the OP as a retirement plan. This may or may not be in the OP's best interest.
 
Its a small book judging by the revenue, probably a little over $1 million to as high as $1.5 million in premium. It would depend on the mix of business, comp percentages and if profit-sharing, if it even qualifies, is included.

90k profit on 159k in revenue isn't bad. Sounds like a CSR, office space, insurance and office supplies. There may be some room to cut that down and allocate the money to marketing.

However you are right, dad has been coasting for a loooong time. The sad thing in, I bet the book is full of older clients. Very few that are new to the agency or younger in age. It will only continue to decline without some life, and the OP is going to need to take even more of that profit to invest in marketing to grow again.

The only way 400k makes sense is because it is spread over 20 years. Otherwise the OP would almost certainly be massively overpaying for this agency. Finally the OP will need to look at the staff member, how stuck in the mud is he/she, can the CSR adapt to newer technology or is the person a dinosaur?

I would be curious to see what the agreement says if the agency goes under, and there definitely better be an agreement. It is extremely unlikely dad could sell the agency for this price in an arm's length transaction.

I suspect dad is looking at the OP as a retirement plan. This may or may not be in the OP's best interest.

I would hope the Dad isn't just trying to take advantage. I would say The Dad would need to include extensive training, Also the OP is getting a start he would not otherwise had and isn't having to pay lump sum as someone normally buying book
 
I would hope the Dad isn't just trying to take advantage. I would say The Dad would need to include extensive training, Also the OP is getting a start he would not otherwise had and isn't having to pay lump sum as someone normally buying book

Well, there is "Sucker!" and "Man this will really save my bacon if he does this." My guess is dad is probably the later. He may be taking advantage but doesn't really intend to do so. Of course, that is also in the eye of the beholder.

I would hope dad does train extensively as well, although if he has been coasting for quite some time, I'm not sure what it would be worth. The OP most definitely needs to learn to market P&C, but he also needs to learn what appetite his carriers will have and how to successfully place business with them.

Additionally, there is no guarantee they will appoint him when the agency is sold. From what I understand, their contracts typically give them the right to refuse an appointment to the new owner. Hopefully they will, but you never know. So that is another thing he should research.

And yes, I am playing devil's advocate in most of this. Hopefully the OP goes into this with eye's wide open and makes sure to avoid any dangerous pitfalls.
 
Well, there is "Sucker!" and "Man this will really save my bacon if he does this." My guess is dad is probably the later. He may be taking advantage but doesn't really intend to do so. Of course, that is also in the eye of the beholder.

I would hope dad does train extensively as well, although if he has been coasting for quite some time, I'm not sure what it would be worth. The OP most definitely needs to learn to market P&C, but he also needs to learn what appetite his carriers will have and how to successfully place business with them.

Additionally, there is no guarantee they will appoint him when the agency is sold. From what I understand, their contracts typically give them the right to refuse an appointment to the new owner. Hopefully they will, but you never know. So that is another thing he should research.

And yes, I am playing devil's advocate in most of this. Hopefully the OP goes into this with eye's wide open and makes sure to avoid any dangerous pitfalls.

You are probably right.I dont do P & C so I am not as familiar but I am getting better picture now

I would assume his book might be worth between 150K -$300 (closer to $150 if cliental are too old) up front, With the 20K per year with added training no upfront I would assume if his Dad does not survive the 20 years he would not have to pay. Maybe 15K for 15 years is more fair for both parties would you say?
 
You are probably right.I dont do P & C so I am not as familiar but I am getting better picture now

I would assume his book might be worth between 150K -$300 (closer to $150 if cliental are too old) up front, With the 20K per year with added training no upfront I would assume if his Dad does not survive the 20 years he would not have to pay. Maybe 15K for 15 years is more fair for both parties would you say?

I have never bought a book, so take my opinion for what its worth.

Typically it seems 2x revenue is the upper end for what an outsider is willing to pay. However, that is also typically paid in full or over a short period of time with a reserve based upon retention. So being able to spread payments over 15 or 20 years has value and would add to the price.

So in a typical transaction, 300k is probably the upper end of what it is worth. You'd have to example the book closely to come up with a real value. The carriers, monoline or bundled, loss history, demographics of the clientele, etc. It may be worth it, or it may be worth much closer to 1x revenue, or even less.

Its like saying I have 2016 Corvette for sale and asking you home much you'll give me for it. Well, was what condition is it in? Show room, daily driver, rental, what?

I would say the book will continue to spit out revenue for some time to come, but I would expect it to continue to deteriorate without some work put into it. Which is good and bad, great that there is revenue and time to learn, bad in that it may give a false sense of safety and the OP won't be motivated to learn and grow.

Again, all just my opinion and worth what you paid for it.
 
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