Fueling Agency Growth Through Succession Planning

For many business owners, succession planning is a task that can often fall into the “I’ll get to it someday” category. If you’re putting off succession planning, however, you may be missing an opportunity for organic growth for your agency. Here’s why.

Organic Growth Defined

First, let’s talk terms. It’s not just fruits and vegetables that come in organic and inorganic varieties — so do growth opportunities for your independent insurance agency. Organic growth happens when you use your own product or services to generate revenue for your firm. Inorganic growth occurs when you generate revenue by buying another business or by offering services you’ve not provided before.

Both types of growth can be positive for your business. They each have their advantages and challenges. Efforts to increase your revenues organically could be thought of as “doing what you do, but doing it even better.” Building relationships with referral sources, strengthening company culture, and fostering client loyalty are traditional, low-risk ways of fostering organic growth. So, too, is succession planning, when structured strategically.

Inorganic growth options include purchasing another agency or offering new types of products. One example is using insurtech to create products like coverage for microevents (e.g., borrowing a friend’s car). Industry leaders are even exploring how to insure the metaverse. Inorganic growth strategies involve more risk but may come with greater rewards than organic growth methods alone.

Succession Planning

A succession plan with a multi-year buy-in, while the owner is still active in the business, provides an additional revenue stream from the buyer’s payments. That revenue can be used to fund new producers or pay for technical upgrades, training programs, marketing efforts, and other tools to build the business.

The most obvious advantage of succession planning is that you know your agency will be in good hands after you leave the business. All the hard work you put into building your business and its reputation will not be lost. You will be able to focus on the daily activities of running and growing your business without the worry of wondering about your exit strategy. It also gives your clients confidence that their needs will be met even after you leave the business.

Benefits of Planning Early

Many owners put off succession planning until shortly before they expect to retire or sell, but starting early has many advantages. If you have a preferred successor who cannot yet afford a full purchase, allowing them to buy in through a phased-in approach over several years may bring the purchase within reach.

The business will benefit from your successor learning the ropes of agency ownership gradually under your leadership. Their ideas, operational style, and new ways of doing things can lead to positive growth for your business. Their buy-in payments will provide revenue that can be used to build the business.

Clients will benefit because they get to work with your successor while you’re still there, and they have confidence that if something happens to you, your successor and the rest of your team can immediately step in. With a succession plan in place and the additional revenue stream that comes with it, you can turn your attention to new opportunities for growth.

Another benefit of bringing in a successor early is that you aren’t reliant on market prices and tax situations at the time immediately before you want to leave the business. Working with your lender and CPA, you can time the deal to take best advantage of market and tax conditions.

Getting Started

A good succession plan requires several areas of expertise. A lender is just one piece of the puzzle. We work with accountants, attorneys, and mergers and acquisitions advisors through the process. This team can help craft a plan that best fits your situation. It is wise to work with a lender who has experience with insurance agency transitions and the ability to provide flexible structuring for the eventual deal package. And remember, it’s never too early to begin discussing your ideas with your team of advisors!