The reasons for this substantial change are mainly obvious. The aging of the broker fraternity and pending compliance. The need for sophisticated technology and economies of scale. Also the insurers are keen to reduce their own costs by dealing with fewer, bigger brokers!
We will talk about selling, buying, and improving, over a series of articles.
Selling
Here are my suggestions for you to get the best possible outcome for yourself, your clients, and your bank account.
1. Take professional advice. (I appreciate that this may seem self-serving, as I think we are the only specialist brokers in this area, but the advice is still correct).After all, most people find they need a broker to buy their insurance, or their house don’t they?
2. Paint the house. In the same way that you would get your house ready for sale, you need to do the same with your business. A good example is to get the accounts correctly in line with the purchaser’s expectations Minimising costs and increasing your profit by as a little as $10,000 per year can put up to an extra $30,000 capital gain in your pocket. Get rid of the perks, like running an extra car. Or club memberships.
3. Get a valuation of your business. Many people thinking about purchasing a business may be doing so for the first time and they will appreciate a formal valuation to support the price that you are asking. This can be an accounting type valuation, or a market valuation from organisations such as our own.
4. Identify potential buyers. There are hundreds of tyre kickers out there, and relatively few buyers have the cash and the right infrastructure to make a success of the purchase. A business broker will have buyers on their database.
5. Describe your business. A complete information memorandum covering all facets of your business will be invaluable in simplifying the process and ensuring the correct story is in the hands of a potential buyer.
6. Qualifying potential buyers. As mentioned before the number of tyre kickers around is amazing, some of them are just down right nosy. Make sure that a genuine buyer has some cash at risk, such as a deposit, and that there is a broad agreement to purchase, before allowing them access to your business for due diligence purposes.
7. Agreements. This is a very tricky area for a general insurance business, there is plenty of history about agreements that have gone pear shaped after the sale has been completed. Accusations of breaches of restraints of trade, professional indemnity issues, rise and fall provisions, all potential pitfalls. The general insurance business is quite different from many others and few lawyers have any regular experience. Your business broker will be able to give the lawyers draft agreements which will simplify the process and reduce your legal costs.
8. Manage the due diligence process. Having received a sale and purchase agreement doesn’t necessarily mean the business arrangement is complete. It is appropriate for a purchaser to want to review the information that they have received and check that it is accurate., This process needs to be managed by either yourself or you’re business broker, because it is the one opportunity the purchaser has to suffer from ‘buyers remorse’ and many sales people can tell you that this is a very sensitive time in any transaction.
9. The hand over.
There needs to be a program, agreed between yourself and the purchaser for hand over. This will include a whole range of things. Some of it will be the physical handing over of files and leases etc. It may be the inclusion of staff and all the issues relating to that and also a marketing plan to ensure that the clients are happy and settled with the new owner. Seek advice from somebody who has been through this process, or ask your business broker for help.
10. Manage your own head space.
If you are selling up completely have a plan for what you are going to do after the sale
You will find shortly after sale that three things happen.
(a) You will discover your life’s partner never really planned to have you in the house 24/7.
(b) Secondly all your mates that you used to fish and play golf with are still working and can’t take time off every day.
(c) Thirdly, all those plans that you had to travel, relax, and be on permanent holiday still requires good old fashioned cash.
One solution is that you can go and work as a broker again. On many occasions we have assisted people to continue to work in the business that has just sold, perhaps only two or three days a week and without all the other responsibilities.
It certainly helps to stay in touch when it comes to any issues of the rise and fall payment that would normally be 18 months to 2 years out, as you are right on top of the details and available for consultation if any major clients are thinking of departing.
A well managed sale and purchase is a beauty to behold. Happy purchaser, satisfied vendor, and content clients. Unfortunately these are in the minority. If even one of these three parties isn’t happy, then there will be all sorts of unhealthy tensions. Avoid this with a bit of planning. When you wake up and make that major decision to sell, re-read this article. Then take action!
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