Top red flags to watch for when selling your agency

Top red flags to watch for when selling your agency | Insurance Business America

Insurance News

Top red flags to watch for when selling your agency

Renegotiation and short-term focus could harm stability

Insurance News

By
Kenneth Araullo

Many agency owners may consider selling their business for various reasons, such as refocusing on leadership and sales, responding to personal or business changes, or taking their agency to a new level.

However, the process of selling an agency can present challenges, as highlighted by Vaughn Stoll, senior vice president and director of acquisitions at Brown & Brown. Stoll pointed out several red flags that sellers should be aware of when evaluating potential buyers, especially in the insurance industry.

One common issue is when buyers emphasize financial performance over team dynamics. During the six-to-eight-week acquisition process, reviewing financials is standard. Still, Stoll said that an excessive focus on numbers, without considering the team, culture, or resources, may indicate future operational priorities.

“If there’s no discussion of how to transition your team and ensure customer satisfaction with the move, reconsider whether this is the best partner for you. Finding that balance between both is vital,” he said.

Another potential red flag is the repeated renegotiation of previously agreed-upon terms. While negotiations are a natural part of the process, constant revisiting of the same points might suggest that the buyer is not committed to a lasting partnership.

Stoll likened this to a relationship where ongoing disputes are a sign of deeper issues. Both parties must be willing to compromise and uphold their agreements to build a successful long-term relationship.

“Avoid nickel and diming or one-way relationships where one party tries to take as much as possible from the other. Look for a buyer who will negotiate reasonably and accommodate certain items for you in the deal. During negotiations, focus your energy on the pieces of the agreement that move the needle,” Stoll said.

A focus on short-term cost management can also raise concerns. Stoll advised sellers to be cautious if buyers are too concerned with quarterly cost-cutting measures rather than taking a broader, long-term view of the business.

This approach may result in workforce reductions or other changes that undermine the agency’s stability. Buyers should ideally have a long-term perspective, particularly when acquiring businesses that are already operating efficiently.

“Before making a change, consider its impact on your team, both psychologically and personally. Only implement a change if you think it will make your teammates feel valued. Help them see the benefits of the new acquisition/buyer over the long term,” he said.

Stoll also emphasized the importance of discussing how both parties can mutually benefit from the acquisition. If a buyer focuses solely on how they will improve the acquired business without acknowledging the value the seller brings, it could indicate an imbalanced relationship. A successful acquisition should be a partnership that enhances both organizations.

“Nothing makes new teammates feel more valued during an acquisition than the first time they realize their processes and ideas are improving the parent organization. Everyone likes to add value. Spending time articulating how both sides will make each other better helps both feel this transaction will ultimately lift each party up,” he said.

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