I Want To Purchase My Book of Business - Need Advice

Hello everyone.
I currently work for a very old and established Property Casualty Agency. I helped broaden the agency 7 years ago when I came in and started the Employee Benefits Division. It is not a finished product, by no means, but the Agency now has a name for itself in the Benefits World.

That being said, I really want to start my own Employee Benefits Firm. I have done tons of research. I have over 12 years of Benefits selling experience with 7 of those years as a broker/consultant.

I do not currently own any part of my book of business which generates roughly $500K in revenue. Some of my customers came from referrals from our main P&C producer whom is also a Principal in the company.

I would estimate I would have to leave behind about $100K of revenue due to shared relationships that we have. So I would be looking to walk away with about $400K in revenue.

I have a fairly good relationship with the two owners. They often come to me for my opinion on things we implement across the agency. We employ about 30 people.

The main reason for me wanting to go out on my own is that I am 33 years old and I have a vision of what I would like the Benefits Division to look like. The two principals are in there 50's and are somewhat "life style" agents if you will. They are in their comfort zone and the agency really is not growing.

I have consulted a bank about a SBA loan, checked in on office space, looked at agency technology so I have a good feel for what my overhead will look like.

The biggest challenge I have right now is coming up with a way to present this to the Principal's of the company. If they shoot down the idea, I will of course remain at the agency until I can come up with another plan. I really need some advice on how to bring up my goals without insulting them or them taking it personal.

Since they are primarily P&C guys, I do believe I could purchase the book of business at an affordable price. If I were to simply walk away from it, the revenue would go to zero quite fast I believe.

Questions:
How should I approach the subject?
How should I seek financing (banks, agency financing)
What should I offer for a block generating $400K in revenue?

I do intend on waiting until after Healthcare Reform passes because this could be a deadly venture if Small Group business goes to the wayside.

Thanks and sorry for the lengthy post!
 
Is there any chance they would make you a partner and let you have control over that division?
 
Yes, they have offered me shares at roughly $15000 per share. To be honest, I really don't care to be associated with the agency any longer. We don't really have the same values. Thanks for the idea though.
 
Upon going to work for this agency, did you sign a contract. What I'm getting at is, what would prevent you from leaving and raiding the current block of business with AOR's??
 
Upon going to work for this agency, did you sign a contract. What I'm getting at is, what would prevent you from leaving and raiding the current block of business with AOR's??

Yes, I have a 24 month non-compete. Otherwise you are correct, I would be going to town on AOR's as we speak. This is going to be tough, but I have to believe this has been done before!
 
I would think the two owners know the value of you to their agency. I would play poker with them and bluff that you are thinking about leaving. I would think they would do whatever is necessary to appease you. Be it more income, or, ownership.
 
I can relate to your situation.

Yours is a bit different as the principles are offering to sell you stock. I would explore that option a bit further. Ask for the a P&L in anticipation of buying into the company. The P&L should give you a very good idea of what the company is worth. Then break it down to see what the employee benefits section might be worth to the company.

If you were to buy the health block I would give 1.5 x commission with some specifics on retention. They might go for it if they feel you are the big reason why there is $500,000 coming in. If they think you got the clients because of their on going relationship on the PC side then it might be a tough sale.

To buy the block you would be taking a huge risk with the economy.

You might be better to walk and open shop on your own. Then in 2 years go after all of those old clients. In the mean time pick up new groups clients. If you have the skills build a block up in this economy then you should have no problem getting those clients in the future.
 
You're other option is to get a contract with the principles to continue to service the existing book, for a fee basically equivalent to what you get now. Any new growth is yours, unless it is a referral from them, then the revenue sharing continues.

An alternative is to simply position it with the current owners that someday you want to go independent. From this point on, you want ownership of new business but other parts of the current deal stay the same. You agree that all P&C business will be referred to them.

Or, simply say "I'm out of here". P&C agents are notoriously greedy when it comes to their book of business. Chances are, they will find you more replaceable then the income stream. Any conversation will have to address how they continue to make money.

Dan
 
ABC makes some good arguments. I concur with the 1.5 and that would be a max offer. I suggest you start at 1.25 and see how it goes.

Also concur that this can evaporate very quickly, regardless of what Washington does to health care. The economy is in the crapper and no sign of turning around. Businesses are cashing in their chips, laying off and cutting back on benefits.

In spite of encouragement or threats from Obama, business doesn't give a damn about what he says. They are not going to hire, or expand, until the economy stabilizes.

What size groups are these? Is all or most of the revenue from group health or do you have ancillary lines as well such as WSM products, LTD, etc.

One last thing. Having been in a similar situation several years ago, the people who let me walk and threatened to enforce a non-compete lost 80% of the business I wrote within 2 years because they had no clue how to manage it. The same can happen here if they refuse to sell you the block, or insist on a ridiculous multiple of earnings. If you walk then everyone loses. You, your clients and the stubborn folks who think they can do what you do.
 
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