NAILBA Perspectives - Spring 2018 - 12

"Once the successor has been identified,
that person needs to earn the respect of the
current owner," Dan Eibner said.
Sometimes there are no family members involved in the firm.
"The BGA may have a loyal, tenured
case manager that might be seen as
someone who could take over the
business because they know the history, the agents, the processes, and
are trustworthy," said Meyer. "However, the skillset required to be a
loyal employee who can skillfully
manage cases is very different from
someone who can strategically lead
the organization, manage staff and
finances, recruit agents, and build
relationships with insurance company executives. If there is a key
staff member who is a qualified and
viable succession candidate, part
of the transition plan should be to
evaluate their strengths to determine what type of people should be
added to the staff to support them
as the owner."
Here is a case of that type. Jackson was a fantastic sales manager for
a BGA owned by Ned. Jackson and Ned
were making progress in discussing
Jackson buying Ned out of the business. Although Jackson was great at
building relationships and identifying
revenue producing opportunities, he
was not a skilled manager of people or
day to day logistics. So while he was

a viable candidate to take over the
agency, for the firm to run smoothly it also needed an operational leader and staff to partner with Jackson
to grow the organization. A search
ensued. A stellar candidate, Frank,
was identified. Frank and Jackson
worked in concert to create their version of the agency's structure as Ned
phased out. Now Jackson is building
production and a sales force and Ned
is managing daily operations so the
agency can deliver on the promises
Jackson makes.
Once the successor has been identified, that person needs to earn the
respect of the current owner, Eibner
said. This will help the successor in
discussing how today is different
from yesteryear with the owner. "The
younger person may fear sharing new
ideas, but it is important they do so,"
he noted.
Determine what is important to
the BGA principal how the transition
will proceed. Do they want a lump
sum buyout or payments over time,
a promise to retain key staff, the
opportunity for them to keep working for a period of time, or do they
want to leave when the sale closes?

Determining the Firm's Value
The next step is determining the business's value. Typically the BGA seller
will believe the business is worth
more money than the successor does.
The current owner must be open and
discuss every aspect of the business
with the successor. They must decide
together how the deal will be structured, including the length of time
for payment and what amount will be
paid to the departing owner.
There are both expensive and free
ways to determine a firm's value, Eibner said. BizEquity, FP Transitions,
and Succession Resource Group do a
good job of valuation, but their fees
for this service range from $5,000 to
$15,000. It might be a better option
to take advantage of the free valuation service for both agents and
BGAs offered by Mutual of Omaha.
It is not necessary for BGAs to be
contracted with this carrier to use
the service.
Another free option is the do
it yourself plan. While it is possible
to do a complex analysis looking at
an array of factors, Eibner said similar results will come from this simple method. Add together 2 to 3 times
the firm's recurring gross annual revenue plus 1 to 1.5 times the non-recurring gross revenue. Apply some discount factors to get to a number that
is reasonable for a sale. The resulting
number will be comparable to the value determined by more time consuming or expensive methods.
Selling Out-A
Succession Alternative
When there is no obvious successor,
selling the business can be a viable
alternative. The seller should begin
by doing research. It is advisable to
get help in this process from a business continuity strategist. This person will create a customized business continuity plan, adding value to
the sale by acting as a logistics guide
and thought provoker throughout the

12 perspectives SPRING 2018

process. The strategist will identify
potential buyers, which could include
other BGAs, private equity firms, IMOs,
banks, CPA firms, and property and
casualty insurers.
Here's an example of a structured
sale. Nate was a middle aged agency
owner who planned to work 20 years
more. He wanted to take his business
to the next level and simultaneously position his firm to be self-sustaining in the future when he decided
to phase out. After several discussions, Nate decided to sell his business to a regional CPA firm that wanted to diversify its revenue and add an
insurance component to their client
offerings. With the help of a business
continuity strategist, a new entity was created with Nate serving as
majority owner and a CPA firm partner as a minority owner. This allowed
Nate to sell his original business to
the CPAs, leverage combined funds
to grow the firm, stay on as managing partner, and have a succeeding
partner who could step in immediately if necessary to continue the business in case of his death or disability.
The successful implementation was
mapped out and guided by a business
continuity strategist who mitigated
the distractions.
Either in a succession or a sale,
life insurance can be deployed as an
effective tool to fund the buyout in
a succession plan. As life insurance
professionals, the BGA is a natural to
implement this tactic.
Additional Human
Resource Considerations
Planning only to replace the owner is
not enough to keep the business running. "A purposeful succession plan
should not be limited to the BGA
owner," noted Meyer. "Creating a succession plan for key staff members
is advisable for a smooth transition
should the people in those positions
leave. Good agency professionals are
hard to find and take a long time to
develop. The BGA owner should have a
plan in place in case a key staff member is prevented from working should
they become disabled, die prematurely, relocate, or resign for personal
reasons. Having a plan in place for
continuity of work flow is important
for stability of agent service."

Table of Contents for the Digital Edition of NAILBA Perspectives - Spring 2018