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

This is how the phone call began. The prospective client told me that I’d been recommended as being very good, but expensive. He was not sure if “very good” was worth “expensive.” That caught me by surprise because in the scheme of things, I am definitively not expensive. My hourly rate might be high, but I’m not expensive. Many moons ago, when I was just getting started consulting, I had the great luck of finding the best mentor anyone could ever hope to find. He was a true

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 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

Have you had your agency valued recently? If not, an up-to-date valuation can be a valuable planning tool for your agency. An agency valuation is the crucial first step for many agency events, including: Perpetuation Mergers and acquisitions Estate planning Buy/sell agreements Divorce settlements As the foundation for these important transactions, an accurate valuation is crucial. Furthermore, a valuation that does not cut corners and meets tax and court guidelines may preven

(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

In the past few years, I have received more phone calls than ever from the families and partners of agency owners who have died. The survivors have a buy-sell agreement and now realize the buy-sell agreement is not economically feasible and/or it is written so poorly that no one understands it. These are horrible situations. How can you avoid these issues for yourself, your loved ones, and your partners? First and foremost, never, ever use boilerplate buy/sell agreements. The

What is the best way to reduce your exposure to EPL suits and DOL investigations? Employ fewer people. I received an email newsletter from a national law firm summarizing the new employment laws in each state. These laws are going to make employment so fair that, especially with Chat AI, employers will simply find alternatives to employees. That will take time. What can you do now? Employ fewer people. Employing fewer people means fewer exposures to suits and investigations a

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

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

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

Here are just a few real-world examples (even if incredulous ones) of how, by not hiring a true professional, agency owners have lost -- a lot: An agency owner was short $1 million in trust monies but did not think the shortage should be counted against his value. His comment was, "I have heard agencies are being sold for 2X and no one says anything about the balance sheet or trust monies." Of course, he was correct that no one ever talks about the balance sheet or trust moni

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

Over the last four weeks, I've had a series of interesting experiences involving larger and otherwise more sophisticated agency leaders failing. The common denominator was their Do-It-Yourself (DIY) approach. Failure is expensive in both money and time. These DIY leaders spent between $100,000 and $500,000, all in, for their failures and wasted a minimum of one year's hard work -- others' mistakes consumed more than a year. On the other hand, the clients I have assisted did n

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

While discussing the profitability of an agency’s producers, the agency owner made an interesting comment about losing money. The producers we were discussing obviously were not profitable, “But,” the owner said, “every commission dollar they generate, even if it is unprofitable, increases my agency’s value.” My first thought, which I almost blurted out, was “I don’t think soooo!” Because if I owned a restaurant, for example, and 25% of the meals served were served at a loss