2001 Best Practices Study

Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000

P ERPETUATION /L EADERSHIP D EVELOPMENT

“We used to just assume everyone would naturally want to be an owner and would be willing to pay for it. Not anymore – there are too many other good investment options out there for them. Now, we have a actual presentation we make to prospective shareholders which focuses on the actual economics of the deal – what it will cost, what the benefits are, what kind of growth to expect, what kind of investment return to expect, that kind of thing. Once they understand ownership from an investor’s perspective, it’s a much easier concept for them to get excited about because it really is a great thing.” “We have a plan in place to eventually move all the agency’s stock to the ESOP. We started out by buying 30% of the owner’s stock and should acquire the rest over the next 10 years…The ESOP is a tremendous benefit and is also a real competitive advantage in hiring new employees.”

Perpetuation planning continues as an area of critical concern for Best Practices agencies. Although the sales and mergers of insurance agents to and with third parties continue at a pace seldom seen before, many independent agencies remain firmly committed to internal perpetuation. Regardless of whether an agency’s perpetuation objectives lie internally or externally, the best practice for any perpetuation scenario remains the development of a formal perpetuation plan in which perpetuation objectives and means are laid out in detail. Once a specific plan is in place, a number of best practices follow: the development of a formal buy-sell agreement, managing the business with the end perpetuation strategy in mind, developing the next generation of agency leadership, and revisiting the perpetuation plan frequently with involved parties to ensure that the plan remains current and viable.

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