Let’s face it, times are tough and no matter where you are financially, you’re probably trying to watch your expenses. When that happens, many of us eat out less, we
The insurance industry is not foolproof despite its best efforts. There will always be agents or brokers who try to scam the clients for more commission, and, naturally, clients who
It is important to consider reviewing your financial behaviors that could be interfering with your financial goals. It is advisable for consumers to consider taking a good look at their
You are probably familiar with the importance of life, health, auto and home insurances, but there are also some unknown policies which can be very profitable! This article will present
Auto insurance has a reputation of being confusing. There’s just so much information out there, that it’s no wonder that people find the concept of auto insurance confusing and, let’s
Let’s face it, times are tough and no matter where you are financially, you’re probably trying to watch your expenses. When that happens, many of us eat out less, we cut our cable or phone bills, we may (if truly desperate) cut out the daily $4 lattes and we will almost always look closely at our insurance costs. Sadly, the insurance often gets cut before the lattes.
What if you made the wrong choice when cutting your insurance coverage? What if that decision saved you $20 a month but ended up costing you half of your nest egg or your home? That’s a whole lot of lattes.
Billions of dollars are spent each year on insurance advertising. Yes, the commercials are very entertaining but what do they focus on? Price, price, price and did I mention price? We are so bombarded with the “price” message that it’s easy to lose sight of the fact that insurance is intended to protect you and your assets. Insurance is intended to save YOUR money, not necessarily save YOU money.
Yes, we all need to live within a budget and your insurance doesn’t need to be a budget buster to do its job effectively. However, with most things in life, there are two sides to every story and in this story, we are talking about price AND protection. It’s one thing to cut your towing coverage and get stuck with an inconvenient $100 towing bill. But what if you cut your bodily injury coverage and got stuck with a $100,000 medical bill because of an auto accident that you caused? It happens and unfortunately, it happens more often than it should.
No doubt, it’s very convenient to buy your insurance online or through an 800 number. Did you know that you may be speaking to someone who just got their insurance license, is reading from a script and is just learning their job? I wouldn’t go to that person for advice and neither should you.
A good insurance agent should help you make decisions when times are good AND when times are tough. They will recognize your need to work within a budget but will help you make a smart decision, not a costly one. Your insurance agent is a critical member of your financial team. If your agent doesn’t listen to you or “get” you, then change agents.
Be smarter about your insurance and get some solid advice before jumping on the “cheap” insurance bandwagon. Protect what matters most.
Also commonly known as professional liability cover, professional indemnity insurance is essential for covering you and your company when engaging with clients. If your service or product is related to advice, design or input to your customers and clients; indemnity insurance is there to ensure that you don’t feel the sting when things go pear shaped.
The perks of indemnity insurance include the financial cover of expenses and legal costs, when it comes to claim defence from a client. Compensation is also under the umbrella of cover should you lose the case and be forced to award a financial outlay.
Many businesses neglect investment in professional indemnity insurance because they have fantastic relationships with their customers and clients. Even if you repeatedly satisfy your clients and your work is of the highest standards, it’s still worth the consideration. If you utilise consultants or sub-contractors, you may find that your clients are passing on a claim made against them to you; their supplier. Many professional services label indemnity insurance as a necessary prerequisite for doing business; you stand to lose money if you don’t have the cover.
The culture of suing has been seeping its way into Britain for the past decade or say, a nasty by-product of our friends across the Atlantic. If you find yourself defending your business in the courts, do you have the resources to properly address the issue and defend with the appropriate force? Even if you do, the disruption to your daily working life (not to mention the stress) can have a major impact on your business. Professional indemnity insurance provides the right kind of screen to deflect all of these problems away from you, from the smallest mistakes to company-wide theft.
When it comes down to it, how much would you pay to avoid being sued for millions upon millions of pounds? The number may seem drastic but the larger your business, the more you can expect to be squeezed for. Your business is at risk every day when you conduct trade and services, the slightest hiccough can become an avalanche of complex legal issues which can really dent your bank account and reputation. Even the most streamlined and optimised quality control programs can have bad days; it’s not worth trusting to luck that you’re going to get away with a mistake. Investing in professional indemnity insurance can mean the difference between building the perfect retirement for yourself or crashing down with years of hard work being undone in moments.
The competition for buying an independent insurance agency is perhaps the highest among any industry for small business acquisitions. It is even more challenging if you are an agent that does not currently own an agency (i.e. not a strategic acquirer). My firm works regularly with agents across the country on the valuation, sale and acquisition of insurance agencies and we see first hand what it takes to make deals happen. After speaking with hundreds of agency buyers, I decided to compile a list of general “rules” to follow.
Rule #1: Know what you can afford
A client once told me “a good agent dreams big”, which is a great philosophy. When it comes to buying an agency, you also need to be realistic. Generally, my rule of thumb is that a buyer needs 20-25% of any potential purchase available in cash to cover the down payment and operating capital to run the business. That means someone with $200k in cash might be able to acquire an $800k to $1M agency. In addition to the down payment, you’ll need to be able to borrow 50%+ of the purchase price from a third party to meet the seller’s down payment requirement. While some transactions still include a significant amount of seller financing, it has become less common with the increased buyer competition and availability of third party financing over the last decade.
Rule #2: Line up the money
Most acquisitions have three parties involved: the seller, the buyer and the financier. All three need to be satisfied with the terms for a deal to happen. Some times the seller is the financier, other times it may be an investor, but often a third party lender is involved. There are only a handful of lenders that finance the purchase of insurance agencies. Some are asset-based lenders (such as commercial banks), others are cash flow lenders (such as SBA lenders) and others still are commission-based lenders (such as Oak Street Funding). Each one has different underwriting and deal structure guidelines. Based on those guidelines, one lender may work for one particular deal but not for another. It is important to understand how each lender determines what they will loan, what is required of a borrower, and the structure that is permissible for the transaction. Many buyers miss great opportunities because they have to hunt down financing while others have already done so and move forward expeditiously with an offer. Additionally, many deals go awry because prospective buyers do not understand the lender requirements and unknowingly make offers that they can not complete.
Rule #3: Be aggressive
You can’t effectively acquire insurance agencies part-time or at a leisurely pace. Other buyers are very aggressive and may even have people that work full time on acquisitions. You may have to look at 15 potential opportunities to find one that is a good fit. The last thing you want is to find a good one and miss the opportunity because you moved slower than the competition. If you don’t have the time to devote to the process, but are serious about wanting to acquire agencies, then consider outsourcing. My firm contracts with about a half-dozen highly qualified buyers at a time running marketing campaigns for agencies around the country. We have been through the process dozens of times and know the challenges and potential pitfalls, so in addition to generating opportunities for our clients they also gain the benefit of our experience. At the very least, have a pro-active strategy to find opportunities, review them diligently and make a decision whether or not to pursue them.
Rule #4: Understand the process
The buyers that close transactions know the process and move forward quickly with confidence. The process generally follows as such: (1) Introduction to the opportunity, (2) Disclosure by both parties, (3) Release of information on the agency, (4) Meeting(s) with the seller, (5) Written offer and negotiation, (6) Due diligence, (7) Execution of the purchase contract and removal of closing contingencies, (8) Closing, and (9) Post-closing transition. Typically from start to finish it can be a 3-6 month process to get to the closing when the parties are motivated.
Rule #5: “Show yours” to see theirs
The disclosure phase is where you, the prospective buyer, share information about yourself including your finances and sign a confidentiality/non-disclosure agreement, and then the seller or his/her intermediary releases the necessary information to you about the business. Your initial goal should be to have an understanding of the financial condition, book of business and operation of the business. The goal is NOT to conduct due diligence at this point. Any written offer should be subject to a thorough due diligence process. If you submit a laundry list of questions prior to making an offer, the seller will most likely lose interest or focus on another buyer. Buyers that are overly risk-averse take 2-3 times longer than an experienced buyer in moving forward, which causes the former to miss opportunities.
Rule #6: First impressions count
When you meet with an agency owner to discuss a potential sale, remember Dale Carnegie’s famous saying: “be hearty in your approbation and lavish in your praise”. The goal should NOT be to negotiate as this can easily turn into an adversarial discussion. It is your opportunity to present yourself as a real and qualified candidate, build rapport with the seller and ask specific, intelligent questions so you have enough familiarity with the business to move forward. Experienced buyers often relay their intentions as to how they will proceed and what they will need from the seller to complete the transaction. Understand that many obstacles that come up during the acquisition process can be overcome if you have good rapport with the seller, so it is important to establish an amicable relationship from day one. Don’t assume that an agency owner is only concerned with how much money they will receive for the sale. Most owners have poured years into building their agency and developed close relationships with their staff and customers, so exiting the business can be a major emotional event. The owner doesn’t want to see his/her legacy come crashing down because he/she sold the business to the wrong person, so the money, while important, is not the whole equation.
Rule #7: Keep the process moving
If not skillfully managed, the negotiations can drag out and eventually stall. When it comes to making an offer, do so in writing and cover the important terms. You don’t want to go back and forth a half dozen times, come to an agreement and then realize that you forgot an important detail. That creates deal fatigue and wears out the goodwill. Use an experienced intermediary that handles insurance agency sale transactions to assist with the negotiations and drafting of a purchase offer. The “middle man” can relieve tension and if they are an experienced M&A advisor they can help insure that key items are included in the purchase agreements. Provide the seller with a due diligence list so they can work on assembling what you need while the contract is being negotiated.
Rule #8: Be flexible on deal structure
One of the biggest reasons buyers miss opportunities is because they fail to see the forest through the trees – as the saying goes. They get stuck on one detail and refuse to budge. I am not recommending that you give in to all of the demands of a seller, but that you evaluate the size of the value gap. Are you willing to lose the opportunity? Is there an alternative means to bridge the gap?
Let’s take a simple scenario. The seller of an agency wants $500k. You think the business is worth $425k – a 15% gap. Can you add the difference to an earn-out and still cash flow? Will the seller stretch out the financing terms longer and carry more of a note? Will he/she hold a note on stand-by (no payments) for a year or two until you can improve the cash flow? Think of the cash flow, risk and total cost of capital, not just the purchase price. Try to understand his/her motives for selling too as this can often reveal an opportunity to find common ground. If the owner is inflexible and unrealistic it means that they are unmotivated, so it’s probably time to move on.
Rule #9: Do your due diligence
I would love to say that the world is an honest place but even good people can omit important details to avoid complications in due diligence. Don’t expect the other side to just give you what you need. Once under an LOI or purchase contract, request it and wait for it. Due diligence can generally fall into three categories: 1) financial, 2) operational and 3) legal. On the financial side, make sure you understand the revenue and expenses both from an historic and a pro forma basis. Usually a trailing twelve month revenue history in a P&C agency is a good indicator of the next twelve month’s performance but there could be a loss of an account, producer, bonus or carrier that may be included in a trailing twelve month look back but will not carry forward. Look at monthly trends with a year-over-year comparison. If the agency deals in accounts receivable, then hire a good CPA to do the digging. On the operational side, understand the culture of the agency from the way the office is run to the quality of the employees and customers. How efficient are the processes and technology being utilized, and where are opportunities for improvements? If there are producers, how does their compensation line up with the rest of the market and do they have any vesting in their book of business? Make sure that you have a good understanding of all aspects of the business before moving forward. It is usually not what you uncover that should worry you, but what you don’t uncover.
Rule #10: Have a post-close game plan
Professional buyers have a transition plan for after the closing. The length of a proper transition period from the owner is dependent on his/her goals and how integral he/she is to the business. In some cases, the owner can walk away after a week and in others he/she may need to stick around for a few years. It is important to remember to execute new agreements with the agency’s staff and producers, even prior to closing. In many states, non-compete agreements between employees and the selling corporation are not transferrable to a buyer. Other items include transferring trust money, getting appointed with carriers and redirecting commissions into your bank account, and a number of other minute details. You will have your hands full for the first few months so make sure that you are ready to hit the ground running.
If you chose to make a play at an independent agency, then expect to commit time and resources to the process; expect problems to arise unexpectedly; and expect stress and emotions to boil to the surface. You may have to kiss a lot of frogs before you find a prince, but, like anything, the more that you practice at it, the better you will become.
Should anyone reading this have further questions, please feel free to contact me at the phone number provided.
Michael Mensch, CBI
Agency Brokerage Consultants
Insurance Agency Valuations, Sales, Mergers & Acquisitions
Main Office: (321) 255-1309
The IRS has stipulated four methods for calculating cost basis. The choice of cost basis method can have a significant effect on the computation of capital gains and losses when shares are sold and, as a consequence, on one’s tax liability.
1. First In, First Out (FIFO)
According to this method, as the name suggests, shares are sold in the order in which they were purchased, often leading to substantial taxable gains because the longer the shares are held in a rising market, the more they’re worth. This is the method generally used, but it shows higher capital gains and hence may not be the most advantageous as regards tax.
2. Single-Category Averaging
This method calculates the average cost per share for each share owned. As in FIFO, this method sells oldest shares first and is not necessarily tax efficient.
3. Specific Shares
This method is for meticulous investors who have kept careful and complete records of shares purchased by them. Depending on how long they have held the shares, they can ask the mutual fund to sell specific shares, preferably the ones they have paid the most for,since the smallest taxable gains would be earned. This method is hence more tax efficient but requires keeping of detailed records. One needs to remember, however, that gains are taxed at different rates depending on how long the shares have been held.
4. Double-Category Averaging
In this method, shares are divided into those with short-term and those with long-term gains and are then averaged for cost basis. Different tax rates apply to each type. The investors will have to give the mutual fund written instructions how many shares from each category they want to sell.
In order to calculate cost basis, therefore an investor will have to maintain a voluminous amount of records and statements relating to investments made, keep track of and account for corporate actions or events that alter the cost basis such as dividends, splits, etc. Each new action such as reinvestment of dividends, additional acquisition of a particular share already held or sale of any investment during the relevant period will necessitate the maintenance of a large amount of brokerage statements and confirmations as also recalculation of the tax basis. This is enough to give the average investor sleepless nights! For those with faint hearts it would be far more preferable to take the easy way out.
Calculate Cost Basis for Securities in Seconds!
Too good to be true? Up until now, calculating the tax basis was a manual procedure that could take up days. Advances in computer technology have now turned the most frustrating and time-intensive calculations and reduced these to just a few seconds. All you need to do is enter a few bits of data in the relevant fields. One of the most popular software being used to accurately determine the adjusted it for securities is Netbasis, is an award-winning and patented cloud base application that Networth Services has developed. This software is being used by government organizations, large corporate bodies, and commercial brokerages. Why spend days calculating cost basis of securities when you can get the answer in a matter of seconds?
Thanks to the internet, finding the right insurance for your needs is easier than ever. You can compare insurance quotes from several insurance providers without even leaving the comfort of your home.
Insurance of all types are important, but you have to make sure that you buy insurance that works for your particular situation. If you have insurance that does not cover your issues, then you are wasting money. You first need to determine the types of coverage that are your must haves. For instance, if you are shopping for health insurance and you have a condition that has you taking prescription medication, you need an insurance plan that gives heavy discounts on prescriptions. Having health insurance that does not cover prescriptions, can leave you with heavy expenses at the pharmacist’s register.
You have to make sure that the insurance companies that you are researching, have coverage in your state. Depending on which form insurance that you seek, the area in which you reside can have an effect on your online insurance quotes. If you live in an an area that is prone to flooding, your home owner’s insurance is likely to be more expensive than home owner’s insurance for a house in an area that is deemed less of a flood risk.
You may want to look into the long term customer incentives that an insurance provider has when you compare insurance quotes. Does the company reward customer loyalty with discounts? If you are shopping for car insurance, are the insurance providers that have caught your eye the type to give you a discount for being a safe driver? Does the insurer have a good roadside assistance plan? If you find yourself on the road a good deal, you may want to have one.
While gathering online insurance quotes is a great way to find the right insurance plan for your needs, you may want to enlist the help of an independent insurance agent. An independent agent can gather information from several insurance companies. A skilled agent may be able to show you some deals that you were not able to run across on your own. If you have a big budget that is set aside for insurance, then you can simply focus on the type of coverage that you need. If your coffers are not as full, then you have to heavily weigh cost with coverage.
If you have ever been in a position to need assistance of some sort, but not had the funds to cover it, then you know why insurance is a must. It is similar to having a savings account for emergency issues, but tends to cover beyond what you have put into it. You cannot just go with the same insurance that your family has always used, if it does not cover your needs. You have to take control of your situation. Get active and get free insurance quotes. If you need more assistance, contact an independent insurance agent. Make sure that you but the best insurance coverage for all of your needs. Do not leave yourself or your family unprotected. You can find the right insurance for your unique situation.