"I bought this book of business for two times 25 years ago; I was just going to do the same when I'm ready to retire." This is one of the most common quips IA Valuations hears from the generation of agency owners getting ready to retire, and we fear it could leave much on the table for owners' retirement and their agency. You bought the book for two times what? Commissions and fees? Gross revenue? Net income? Did the owner in this example really understand the details of what their price was based on? Far too often, the answer to this question is only a half-hearted "yes." When really, an agency owner or anyone interested in buying a book of business, should be able to confidently say "OF COURSE!"

In the market right now, prospective buyers or lenders are not determining the price they will pay or lend for an agency based on revenue alone, but instead on EBITDA. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and it is expressed as a percentage of gross revenue. You may hear someone use the term "profitability margin" when referring to EBITDA and, while that is commonly accepted, they are not synonymous. Technically speaking, EBITDA is just one of many ways to measure profitability. One other measurement that is most visible to agency owners is net income or loss. The difference is simple: