image Do Your Due Diligence Before You Sell Your Agency

Do Your Due Diligence Before You Sell Your Agency

What if you messed up the most important sale of your life? 

When you are selling your nonstandard independent insurance agency and have an interested buyer, you might already be spending the profits in your head. But conduct your due diligence before making the sale, or you may be left holding the bag. 

How do you go about exercising your due diligence, and what are the most important steps? Keep reading to discover everything you need to know! 

Due Diligence Defined 

Our guide will walk you through the most important things you should know when selling your NSA independent insurance agency. Before we go any further, though, we need to answer a pretty basic question: What, exactly, is “due diligence”? 

“Due diligence” is something of an umbrella term. On the most basic level, it means that both the buyer and seller are doing everything in their power to review information for accuracy before completing a sale. 

The need for reviewing such information may seem obvious: This is likely to be one of the most important purchases an individual or firm will ever make. And it’s certainly a big deal that you’re selling an insurance agency that you’ve spent years nurturing. 

Due Diligence: Why it’s Important for Sellers, Too 

Due diligence plays a major role in most major business transactions, but we typically focus on why this process is important to buyers. After all, it only takes one misunderstood or unread document for the buyer to pay far more than they should to acquire someone else’s agency. 

But as a seller, due diligence is equally important for you. Your first instinct may be to withhold certain information about your company as if you are a poker player keeping the cards close to your chest. However, if you omit key information or, worse yet, misrepresent key information, it could delay the sale or cause you to lose the buyer altogether. 

Long story short? Auditing your information and records and performing your own due diligence may seem like a lot of extra work. But it remains one of the most important things you can do if you wish to finalize the sale. 

The Sales Timeline 

There is one bit of good news about the due diligence you need to perform. If done right, you will effectively have years to prepare for the sale! 

That’s because most agency owners don’t just wake up one day and decide to sell it right away. Instead, they usually ponder the process and conclude they will try to sell the agency in the next three to five years. 

There are many reasons to hold off on the sale, ranging from personal preferences to growing agency value. But once you have a sales timeline in mind, it’s essential to begin the first steps of due diligence that will help down the line. 

Reviewing Important Documents 

Due diligence usually boils down to gathering and reviewing, for better or worse, a small mountain of paperwork. But what kinds of documents should you be collecting and reviewing? 

Generally speaking, you need to collect company tax returns, bank statements, payroll reports, and other financial statements. You also need to collect management system reports, contracts, and carrier production reports with detailed information. 

Basically, any paperwork having to do with profit and loss needs to be part of the process. This is the kind of information a buyer will want to review as soon as possible. 

microscope going over important documents

Preparation is Key 

So far, the core of due diligence may seem pretty simple. What’s so hard, you may ask, about collecting and reviewing paperwork? 

The honest truth is this process isn’t that difficult. Nonetheless, most people selling an insurance agency have never done so before. This causes many of them to make rookie mistakes in collecting paperwork, accurately representing the agency to buyers, or both. 

If this is your first rodeo selling an agency, you don’t have to do everything on your own. You should know that you have the option to work with a third party if needed. 

The Option of Working with a Third Party 

As we noted above, most due diligence mistakes occur because the seller has never sold an agency before. If you find the process intimidating, or you simply want to save time and increase accuracy, the solution is simple: Work with experts in mergers and acquisitions

Some sellers are hesitant to do this because they fear lost profits when the third party gets its own cut of the sale. But the simple truth is that a reliable third party brings a lot of value to the table. 

For example, let’s say you have a buyer lined up and effectively only have a few weeks to complete due diligence. It will be challenging for you to gather and review all the information while still running your business, but a third party can focus on the paperwork while you focus on running your agency. 

A third-party review can also ensure accuracy. Unless you have experience as an accountant, you may not know what to look for in the paperwork and how to identify certain red flags regarding the buyer, but a third-party specialist will recognize these signs. 

And here is the best part: a third-party due diligence report of your business will give you a better idea of your company’s overall value. With a more accurate valuation, you will be able to sell your agency for a higher profit, meaning that working with a third party will more than pay for itself! 

Selling Your NSA Independent Insurance Agency: What Comes Next? 

Now you know the due diligence you should perform before selling your NSA independent insurance agency. But do you know who is actually interested in buying your agency? 

It is never too early to set a plan. 

Confie is here to advise you on all the important considerations in selling your agency. We have a seasoned team who knows the ins and outs of selling your agency. We offer you confidentiality and a quick and easy evaluation. 

Here at Confie, we are always looking to bring successful agencies into the family. To see what we can do for you and the business you love, contact us today