Pearls of wisdom from agency owners

A career spent serving clients yields these five lessons on agency ownership and perpetuation.

Insurance agents often spend their 20s producing, their 30s managing, their 40s becoming owners, and their 50s and early 60s exiting their agency. (Shutterstock)

I suspect if you are the average age of an insurance agency owner (now pushing 60, according to industry reports), you’ve had your share of “lessons learned.”

If you’re still relatively young, you will get your hard knocks soon enough. We all have examples of mistakes we’ve made or things we might have done differently. In project management, reviewing lessons learned is the process managers go through at the end of a project to capture what went right and what went wrong. NASA defines it as, “knowledge or understanding gained by experience.”

But you don’t have to be a rocket scientist to appreciate that not everything in life goes according to plan. It’s the wise man or woman who learns from mistakes and adjusts accordingly — or who listens intently (let’s hope!) to those who have gone before.

The agency principals I’ve spoken with over the years certainly have their stories to tell. Some of them have said they should have managed their expenses better. Others wished they had paid more attention to developing staff, mentoring and work-life balance. Many have regretted not identifying a successor at their agency who could take over when they were ready to retire.

Although it’s different for everyone, I find that agents generally spend their 20s producing, their 30s managing, their 40s becoming owners, and their 50s and early 60s exiting their agency.

Along the way, there can be some bumps and detours, but the road to agency ownership and perpetuation usually follows this 30- to 40-year trajectory. Here’s the distilled wisdom that I’ve heard from agency owners over the course of my career that might help smooth your path forward. Call them my lessons learned.

No. 1: Develop owner mentality

Get yourself in the right frame of mind to be an owner. Early on in your career, start putting yourself in the owner’s shoes. Get a taste of management and the decisions that an owner has to make. Are you willing to make the sacrifices necessary to becoming a future owner? It might mean saving more money and spending less on a house or a car, forgoing the country club life or expensive vacations so you can invest in your future. It may mean getting the education you need or moving to another agency where there’s more opportunity.

Related: Charting the progress of an ambitious young insurance agent

No. 2: Create value

Learn how to create more value in your agency. Understand that not every dollar of revenue is created equally. Some streams of business generate more revenue and are more valuable. You may need to change your behavior to focus more on cash-flow-generating business.

One way to build value is to be more profitable by reducing your expenses. Perhaps you need to invest in more efficient office equipment, a more advanced phone system or newer computer systems.

Make business decisions that can free up more cash. For example, if you write business that requires a full-time customer service representative (CSR), consider writing business that requires half of a CSR. You create the same amount of revenue but at half the cost.

No. 3: Get your house in order

Focus on better management to create greater cash flow, which will result in more value over time. You will earn more money for your agency when it comes time to sell or transfer ownership.

A good analogy is the homeowner who builds value in his house so when it comes time to sell, he can get top dollar.

Over the years, he makes improvements such as upgrading the kitchen or adding a sunroom, and he keeps up with repairs. When the “For Sale” sign goes up, he’ll be able to sell his house faster and at a higher price.

Too often, agency principals haven’t invested in their firms, yet they think their agency should fetch the highest price. It doesn’t work that way. Agencies that are willing to invest in technology, training for their producers and a high-quality staff will be more attractive to a buyer. Those are the agencies that will have more options to grow, increase value and transfer ownership.

No. 4: Grow organically

Organic growth is the value you create when you invest in your agency. Call it sweat equity or old-fashioned growth. Inorganic growth occurs when you purchase another agency or a book of business that someone else has developed. With inorganic growth, you earn a return on your investment, but you carry the expense of the capital to acquire it.

Organic growth has the best return because you’re not borrowing money and tying up your capital. As interest rates rise, organic growth becomes more attractive. Organic growth does takes time and discipline, but it has the highest rewards. Grow organically by investing in marketing and advertising, office automation, your producers and staff.

Related: 5 great habits to grow your insurance business

No. 5: Groom your successor

One of the regrets I hear frequently from retiring principals is that they should have identified and groomed a successor much sooner. They may have had someone in mind, but they failed to communicate that to the person. That person left the agency to find other opportunities. There are many ways to transfer ownership. It can be in stages over time to ease the exit and maximize tax advantages. The important thing is to have a plan and to communicate it to your staff.

One last note about succession planning

A good succession plan can help you create value in your agency, groom a successor and ensure that your legacy lives on long after you’ve left. Here are some tips for successful succession planning:

David Tralka (dtralka@insurbanc.com) is the president and CEO of InsurBanc, a division of Connecticut Community Bank, N.A. The opinions expressed here are the author’s own.

See also:

Agency Succession Planning

How to grow your agency’s business — without putting your credit in danger

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