Insurance brokerages can be essential businesses for providing clients with customizable insurance solutions. As with other businesses, it can be important to know the value of your insurance brokerage, but there can be many factors that will determine the value of this enterprise.
Depth Of Client Pool
The depth of the client pool for the insurance brokerage will be a major factor in determining the overall value of the company. In fact, there may be parties interested in acquiring the business for the purpose of gaining access to this customer list. As a result, it is important to ensure that you are able to provide accurate information about your client base during the valuation process as this can make a major impact on the result. Unfortunately, some insurance brokerage firm leaders may fail to realize this, which can result in them being caught by surprise when their valuation consultant requests this information.
Average Yearly Revenue For The Firm
The revenue that the firm is generating is another major factor in determining its valuation. However, you should be mindful of the fact that the valuation will typically utilize an average of the most recent several years of revenue. The trend of the revenue for the firm will also be considered during this process. Not surprisingly, firms that have an average increase in yearly revenue can expect to be valued higher than a comparable firm with declining revenue levels.
Debts And Other Liabilities That The Brokerage Firm May Have
Insurance brokerages will often rarely underwrite the policies that they provide their clients. Rather, they will work with a network of insurance providers to ensure their clients are getting the coverage that they need. While this generally results in these firms having little debt or other liabilities, this will not always be the case. Assessing the current debt levels of your brokerage firm, as well as the type of debt that the firm has incurred, will be important factors.
An example of this can be the debt incurred to buy an office building for the firm as this will provide it with important assets. This may result in it being less likely to be significantly hurt by the debt. Conversely, debt incurred for operating costs may be more troublesome to potential buyers as it is debt that provides no equity in assets. Not surprisingly, excessive debt levels can be a common reason for a business to receive a lower valuation than the owners expected.
Contact a local insurance brokerage valuation company, such as Insurance Agency Appraisal, to learn more.