Many insurance agency owners have long relied on an old formula for determining the value of their business.
“I don't need a valuation,” one owner told me, “I know how it works. Everyone gets a multiple between one and two times revenue.” Interestingly, the following year that owner was surprised when a prospective buyer started looking at his company and things got more complicated.
The first problem with the “one to two formula” is that it's both true and false. Many transactions do end up valuing out at 1 to 2 times revenue. Depending on the size of your firm, that can be a very big range. Consider the difference between one and two times revenue for a $1 million agency. The difference is a million dollars!
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