Business valuations are complex, at least when done correctly. One reason for this complexity is that a business’s value varies based on factors such as the parties involved, the purpose of the valuation, and what is being valued. ​For example, if an agency is being sold between family members, the parties MUST ABIDE by the IRS valuation guidelines. This is not optional. This rule has been in place since 1959! I do not know why some accountants, and more importantly, some bus

Every once in a while, I write an article on trust accounting. Recently, I was searching my archives and came across one I'd written 20+ years ago. Nothing much has changed, so I feel I’m being redundant writing on this subject again and again. But many agencies and their CPAs do not know why or how independent insurance agency accounting is different. The problem is exacerbated by agency management systems that cannot handle insurance agency accounting. QuickBooks, for exam

Recently, a few of my clients have identified structural issues within agency management accounting systems. I won’t pretend to understand all the technical factors within these systems. The net effect is that gross numbers may be materially overstated while the net numbers are correct. That is a problem, and absolutely no one should ever accept the response, “Well, the net numbers are correct so don’t worry about the gross numbers.” For example, agencies often run aged accou

A recent IRS case highlighted the importance of hiring a qualified appraiser for asset and business transactions. "Qualified” is a definition provided by the IRS. A person cannot legitimately claim to be “Qualified” if they don’t meet the definition provided by the IRS. Here is an AI summary, which is actually a pretty good summary of the situation. The Hidden Risk of Using Unqualified Business Appraisers: Choosing a business valuation provider based solely on price can be a

I consult with insurance agencies, brokers, carriers, and support systems of all sizes. My agency clients range in size between $100,000 in revenue to far over $100 million in revenue. I believe small agency owners have the hardest job because they must generate the revenue, service the revenue, manage IT, manage people, manage carrier relationships, and wash the dishes. Years ago when I began my career, life was less complex and being a small agency owner was easier. But now

Humans have always been attracted to fast money like moths to flames. Nothing is new in human behavior, at least in this regard. The difference today though is how technology can now measure how strongly attracted the moths are to the flames. An old-fashioned analysis of a gold rush is a good example of people chasing easy, fast money. This example is very relatable versus discussing financial engineering, huge debt loads that are not really debt but sort of is debt, derivati

If you are interested in running or building a high-quality agency/brokerage that is focused on commercial (though not exclusive to commercial), below are nine critical metrics. The following metrics are a subset of the detailed metrics I provide exclusively for my clients. My firm has developed the most important metrics for agents and brokers at a depth previously unseen in our industry. Our predictive metrics eschew averages and quartiles, which are absolutely horrible met

I recently returned from a phenomenal convention dedicated to business valuations. The presenters and attendees were high quality, extremely well-educated people focused on all the complexities of doing business valuations correctly. I hate to tell the readers who believe a business valuation is simply X times EBITDA that it is not that simple. Business valuations vary significantly by purpose, jurisdiction, and a myriad of other factors. For example, the value of a business

(And if the process sounds easy, you've chosen the wrong appraiser/business broker) One of the most dreaded emails/phone calls I get is from an agency owner, usually of a small agency, that has been led to think agency appraisals are simple. Agency appraisals are indeed simple when they are wrong. I know immediately the owner is going to be frustrated with me when I am simply trying to protect him and his agency from their own shortcomings. Some appraisers will gladly take ad

As the saying goes, we all have our strengths. Some people's strength is running really fast. I run fairly slow. Some people's strength is jumping high. I'm pretty good at jumping low. Some people can sing multiple octaves with tremendous vibrato. I can’t quite carry a tune in a bucket. My music downloading skills are decent though. In college there was a truly intelligent engineering student in my residence hall who lived a few doors down from me. He came from a family with

When you need an agency valued, check this list first: What kind of valuation do you need? Different agency values exist, exactly like different property values exist. In insurance, you have replacement cost, actual cash value, market value, stated value, and so on and so forth. With a business, you have Fair Market Value, Fair Value (for investment and likely a different value using the definition of Fair Value for divorces), and so on and so forth. What level of valuation d

Do Not Hire a Great Salesperson as Your CEO Let's define success: Success is a strong organic growth rate that exceeds industry inflation by at least two full points (Premiums grow by approximately 3.5% annually, so successful organic growth is at least 5.5% for agencies. For carriers, the 5.5% must be measured on a DWP basis to avoid the reinsurance effects/machinations that effect NWP.), and a profit margin based on operating ratios for carriers no higher than 92% and 20% f

Considerable confusion seems to exist within many agency owner networking groups regarding accounting, cash flow, agency value, and income statements. Hopefully I can clear up some of the haziness. First and foremost, high quality financial statements are required in order for your business to be in compliance. An accountant told me the other day that high quality financial statements are not required for small businesses like most agencies. A state association director told

An agency owner told me the other day, "Chris, you just don't get it. Our situation is unique, and you're not seeing that we are unique." First off, just about every agency owner I have ever met has said that. If every agency is special, then no agency is special. Second, I have visited over 1,000 agencies, so I am probably in a far better position to judge if an agency is special than someone who has only worked in one or two. When agency owners say, "My agency is unique" in

Do you ever wonder how to improve staff performance without causing undue stress? Do you worry if people are cutting corners or if producers are putting pressure on staff to cut corners? Do you ever worry about your E&O exposures relative to under-servicing or over-servicing clients? Do you ever worry your staff are working too hard or too little? Do you wonder about the cause of your staff turnover? Do you wonder about the best way to measure staff performance? If you answer

I make a lot of my money fixing and/or assessing problems created by "professionals" who agencies hired in the past to assist them with agency valuations, contracts, accounting, and even once in awhile agency management system issues. I much prefer helping agencies build their futures rather than doing rehabilitation projects that would never have been necessary if the original professional had been honest and competent. Here are a few ways to avoid hiring the wrong "professi

Agency owners are like gossiping kids, always asking and telling what the latest multiple of EBITDA their agency’s value is. But they never ever discuss the EBITDA. Let's say the multiple is 6. Then it is 6 times EBITDA, but what is the EBITDA? Three, at least three, different kinds of EBITDA exist, and it pays to know which EBITDA is being multiplied. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. The idea is to identify cash flow excludin

I perform many agency valuations each year. Virtually every new client who requests a valuation tells me they have good data. They advise me their data is so good I will have an easy time valuing their agency. Almost none of these agencies have good data. Their data is often of horrendous quality. The disconnect between what an agency owner thinks is good data and what truly is good data is due to many factors, mostly related to owners not possessing context for what defines

What is an agency worth if it cannot even figure out its own revenue? That may seem like a silly or even stupid question. After all, who does not know their own revenue numbers? It turns out that when agencies submit their data to us and others for valuations and loans, quite often they give multiple answers regarding the amount of their revenue. They "know" their revenue number, but in one spot they'll advise their revenue is $1 million, and in another document/answer box th

July 8, 2010, Insurance Journal: "FBI Raids Tennessee Payroll, Insurance Firm Sommet Group" July 7, 2010, BestDay News: "Former Agency Owner Arrested in $1.3 Million Insurance Scam" July 1, 2010, Insurance Journal: "Louisiana Agent Accused of Misappropriating Premium" These are just three headlines of many that have been hitting the newswires and Internet almost daily for many months. In almost all cases, the headlines involve agents who have not forwarded premiums to compa