Appraising. Book of Business

williamsonja

New Member
6
I am looking to a book a business. It is really small only about $65k to $85k in renewals. The seller is wanting $135 but from all the financiers I have talked to say he is over valuing his book. One appraiser we have talked to wants like $4000. What is the best way to get a fair price for both of us buyer and seller?
 
I am looking to a book a business. It is really small only about $65k to $85k in renewals. The seller is wanting $135 but from all the financiers I have talked to say he is over valuing his book. One appraiser we have talked to wants like $4000. What is the best way to get a fair price for both of us buyer and seller?

Sounds like the seller 2x commission. Offer the guy a 50% commission split for 4 years. He gets his 2x, you don't have to take a loan, he has an interest in keeping the renewals coming in while you transition into your new role.
 
There is a big difference between $65k and $85k.

If you're trying to get a loan from someone they're going to want to be extremely conservative. That doesn't mean they're right, it's just the amount of risk they're willing to take. I've seen folks pay 3X renewals and get a bargain and I've seen folks get ripped off at paying just over 1X. There are a ton of other things to consider. Is this P&C? Health?

To get a good idea of what you're working with sit down and consider all of the other outside factors, good and bad. If you're income is based on loss ratios, is it a clean book? Is the location strong and growing? Is it a storefront in a "transitional" neighborhood?

The most common problem with little books, especially if you're trying to get a loan, is that the overhead on running an office is going to be just enough to keep you from wanting to hire staff to really grow the book. If you have a $3mm book of P&C business you have staff already paid for and that covers the CSR work so you can really focus on growing the business. If you've barely got $70k in then by the time you pay the overhead and whatever the loan is, you're pretty much stuck with enough to live on, not enough to hire staff and really focus your efforts on marketing (which also can take more of that green stuff you're probably going to be lean on).

Where these little books tend to do well is if you have an agency already and you're buying the book to enhance your own, using it to reach into another area, etc. A small book on it's own is generally not worth much.

After that's all been said, it's also entirely possible the location is so wonderful because they just built things around it and tons of traffic will be coming through and it's just an agency bursting with growth potential. I doubt it, but those are a lot of the things you need to consider vs just looking at the revenue the book is paying out. A lot of this is much more subjective than an underwriter is going to really look at.
 
Thank you for the advice. It is a book of mainly auto and home insurance. Their is no store front. He rents a room from his CPA. Which I will not have access to if were to buy it. The owner of the book is also in deteriorating health and only has a few years left. He has very little saved and mounting medical bills. The company is Horace Mann which defines it's territories for the agents. I would mainly call upon schools and teachers which I have a few connections in the industry. The seller is also a w2 employee and I would come in as an exclusive agent being paid through 1099. He has no employees. He has been sick the past few years and has been unable to truly get out and sell, so there is some growth there. He also has it setup to have payroll deduct in one the school districts he calls upon. He has no written practices or procedures for running the business. I would have to come in and basically start from scratch and rebrand the agency. There is some marketing but no one real knows Horace Mann or him in the area. We are meeting with the appraiser and I have a feeling the number will be closer to one time more than two times the book value. We are paying $1000 for appraisal and closing.
 
Thank you for the help.
The agency is Horace Mann. It is in the Houston, Texas area. The agent selling has a deteriorating health issue that is keeping him from being able to service and get new clients other than referrals. He was in the hospital for almost a year and has slowly been recovering.
Some of the details about his agency are that he doesn't have a building. He rents an office from his CPA which I will not have access to when I buy the agency. He has no staff, but he has almost 1,000 clients. This would put me in the situation of having to go out and sell and service the book. There will be a need for an employee quickly to help grow the book. The agency is a sole proprietorship and he is a W2 employee for Horace Mann. This has proved extremely difficult to show the value to a bank or financier. I also have little to no experience in the insurance world. I would be a 1099 employee. He does have a school district that does do automatic payroll deduct. He hasn't been out pushing the brand, so I would have to spend money on marketing trying to rebrand the agency and get the Horace Mann name out there. I offered him to pay him half o the income for 3 years. That would equal 1 and half times value, but he turned that down. He needs the money up front. Would that effect the amount because he needs to sell and wants all the money up front? Any advice will be appreciated.
 
The value of a Book is dependent on what the Book is made up of such as the type of products, the quality of the carriers and the quality of the clients... is it a preferred book or non-standard, independent or captive, etc.

Typically the multiple is based on gross commissions and will vary between 1x to 2x depending on above.

Also, it is important to understand what is motivating the seller to sell?

You, the buyer must be comfortable with not only the price you offer for this Book but you must confirm that the seller owns and controls the book before you make a binding agreement.

Mike Maiman
MKL Agency Broker
Do you want to sell an agency? | Agency-Broker.com
 
Be careful. Horace Mann can be a hard book to sale. I had 2 friends that couldn't sell their and ended up selling back to HM.
 
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