How to Value Agencies

March 9, 2014

Step 2 of 10 - Written by Al Diamond


2. Is your agency worth your projected asking price?


Will the agency provide at least enough earnings (profits less taxes) to warrant a buyer offering you at least what you need to sell the agency? Before even considering any offers, one must determine whether the agency will provide enough earnings to support your asking price. This can entail some house-cleaning.

Eliminate any bad debts from your books and get your financials straight. Prospective buyers, Diamond notes, “don't look at your balance sheets from five years ago; they look at your balance sheets today. You have time to make sure it's clean. Fix your numbers.”

Next, keep your working capital in the bank. The hard value of one's agency includes its tangible net worth, its cash on hand. Many agents, says Diamond, make the mistake of emptying out their bank accounts at the point of sale. But that robs the agency of some of its value, and valuation is key in sweetening the pot for potential buyers.

Next, take an honest look at your staff and consider who might need to go. If you have more people than you need, it's driving down your profitability—and the new owner will just end up eliminating them later. It lowers the value of your agency to show lower profits for staff that you know are not productive for you (or for the new owner). Other expenses must be considered. Will your accounting staff, for example, remain with the firm once it's sold? Perhaps not; the new owner will likely use his own.


“If you eliminate the dead wood in your agency, then a buyer will see a more honest view of the potential profitability of your agency,” says Diamond, who states that a 10% to 15% profit margin or more, much easier reached once you streamline operations, exhibits more appealing earnings potential.

Bill Friend, Principal
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Cleveland, Oh. 44146
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