I find many agency owners have firm opinions regarding the importance of S-Corporations and LLC’s. These opinions are not always fully informed. Making the situation worse, their advisors and particularly their accountants are not always fully informed. The accountants continue to make the assumption that all businesses are the same relative to whether S-Corporations, C-Corporations, or LLC’s are best. They are particularly not informed regarding cash flows that cause them

I have been valuing insurance agencies a long time. I have been valuing them using both the Intrinsic Value and Market Value methods most of the time. For anyone interested in reading a brilliant description of these two methods, I suggest reading the article, “Musings on Markets” (September 7, 2011), by Professor Aswath Damodaran of the NYU Stern School of Business. Intrinsic value is usually determined using one of several versions of the discounted cash flows method (the e

I have unfortunately worked with the families, estates and partners of several agency owners who have passed away. Most, but not all, of the deaths occurred unexpectedly. In all cases, the person who passed left their families, estates and partners with far more problems than necessary. So my question to you is this, if you passed away tomorrow, would you leave the people around you with unnecessary problems? Agency Value One of the absolute worst situations I absolutely drea

I found myself arguing an extremely silly point with an agency owner at a conference. Everyone but the agent saw the silliness of his argument. I explained the point every way imaginable, to no avail. I could see from the looks on others’ faces, they were tiring of him not getting the point either. If he had been one of the audience members watching someone else argue, he probably would have seen the errors in his thinking, too. But, sometimes you just have to be outside look

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

The press has filled pages over the last two years with details of the financial misdeeds of large corporations. Several insurance companies have had to modify their financial reports too. A lot of these misdeeds have involved balance sheets. Most people understand the income statement and how revenues must exceed expenses to have a viable and valuable company. However, most people, including some Wall Street analysts, tend to over-look balance sheets. A few big company exec'

An agency valuation I completed a few weeks ago was considerably less than the agency owners expected. The reason? Their balance sheet was very poor and they were materially out of trust (meaning (Accounts Receivable + Cash)/Accounts Payable was less than 1.0). They were quite upset that I would decrease their value for this reason. They retorted, "We always pay our companies on time, our companies have never been hurt by this, our customers have never been hurt by this, and

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

I am ecstatic to report that more and more agencies are signing Buy/Sell Agreements. Congratulations to these agencies! If your agency is considering instituting a buy/sell, I emphatically recommend the following steps: 1. Include a precise definition of "value." When a buy/sell agreement is triggered, a value of the agency will need to be determined and at least five major definitions of value exist. Several of these definitions even have sub-definitions. Different definitio

An article I authored regarding the importance of annual accountants’ reviews sparked a lot of emails from agents sharing their experiences about having their agencies audited. Stories ranged from one agency that discovered an employee was embezzling funds, to another that learned their long-time bookkeeper (who happened to be a partner) was totally incompetent at keeping books. Others shared simple but large mistakes, some were in the agency's favor and some against it. In e

Deep in the Louisiana swamps there lies the legend of the voodoo queen, Marie Laveaux, who provided simple but costly answers for people in search of hope. According to legend, she would concoct a potion that caused a man’s heart to change with just one short kiss from a young girl’s lips. Forever after, he would be devoted only to her. For 1,000 Spanish bits or possession of the woman’s first born, Marie would undo the spell. Marie became a rich woman. People pay dearly for