Most agency sellers want all the money in advance. This may be reasonable in some circumstances, but it is not always feasible and you will need it to support yourself during a transition period. Depending on the seller`s involvement in the business, this period can be a month or a few years, for example if he.B he is the producer on larger accounts. Money motivates people, so you need to incorporate an incentive into the deal if you expect the seller to do some work. The incentive could take the form of (1) a fiduciary withholding of proceeds, (2) an earnout, (3) a promissory note, or (4) a contract of employment or consulting. Conditional consideration should be sufficiently essential to motivate action. How a buyer deals in the first few months after the acquisition can affect or break the success of the transaction. The key to a successful integration includes (1) “on-site starts” from day one, (2) a plan to communicate the transaction with your employees, employees, carriers, and customers of the acquired agency, and (3) minimizing disruptions to day-to-day operations. In my last post, I discussed three common mistakes buyers make when acquiring an agency: (1) emotions cloud their judgment, (2) are misled with incomplete information, and (3) are influenced by transactional advisors. All three deal with the collection and processing of information. In this article, I want to talk about three mistakes that buyers make in terms of executing transactions. Let us come to that.

When you get into the middle of a transaction, a lot happens. You communicate regularly with the seller, do your due diligence, try to go through the lender`s underwriting, manage the preparation of legal documents for closing, and prepare to integrate the agency`s operations into your business. From the letter of intent to completion, the time can be 45 to 90 days and time passes quickly. One thing buyers fail at is an organic growth plan for the acquired business. Once you`ve closed a deal, add volume to your ledger. No agency has 100% retention. You need to adapt your marketing to compensate for the normal turnover with your increased volume. Budget for additional marketing and resource allocation for ramp-up. If you don`t, your income will decrease and you`ll be stuck in the acquisition trap of having to make more acquisitions to cover the shrinkage. The danger is that debt can continue to accumulate and your equity will shrink even if your agency has grown in size (that`s a problem for another day). No one forgets to include the purchase price in the contract, but remember other critical conditions such as how it is paid, when it is paid, the consequences and remedies in case of non-payment, including a security right in assets, etc.

The variety of payment methods and transit times is limited only by your imagination. You can find some examples in our ____ checklist. Also indicate how the parties allocate the purchase price for tax filing purposes. To ensure the smooth running of the business, the parties may want to agree on how and who will inform customers of the purchase and sale, as well as other issues that may affect the company`s transition, such as. B the transmission of telephone lines, the sending of mail, the removal or installation of signage at the former location of the agency. etc. Solving these problems early will contribute to a seamless transfer of the company. Escrow remedies at the end are usually used when you need help for up to 6 months. An earn-out is typically used to encourage retention or growth over a period of one to three years.

Seller promissory notes can last more than a year for any period of time and, although often a fixed amount, have performance requirements such as revenue withholding or non-compliance with competition. Employment and consulting contracts are usually used to provide the seller with additional income opportunities for the period for which they wish to continue working (more on this below). Aside from how you structure the payment of funds, another consideration is what the seller wants to do after closing. Not all sellers want to leave. Many agency leaders like to sell or train employees, but are exhausted when it comes to dealing with all the stress and daily tasks that come with owning a business. In addition, some directors want to sell their agency, but the product will not be enough to finance their retirement. Offering a “sell and stay” option could open up more acquisition opportunities as you create a win-win solution for people who want to make money but don`t want to get out of it. Note that a key element of this type of offer is to create a compensation plan that meets the seller`s income needs. Do you buy and sell stocks or assets? If assets exist, the agreement must list all assets included, as well as those that are explicitly excluded. Expiration dates are probably the biggest asset, but don`t forget about physical properties like computer software you might need to access expiration records.

This includes intangible assets such as the right to use telephone numbers, fax numbers, web addresses and the name of the sales agency. I have been involved in over 200 transactions. Each transaction is unique in at least one way and teaches us something new. The variables of a business are numerous and include (1) the personality, motivation and personal finances of the seller and buyer, (2) the relationships and concentration of the sales agency`s revenues with carriers, brokers, producers, employees, customers and referral sources, (3) the sales, service and marketing processes of the sales agency, (4) records of the sales agency`s accounting and management system, (5) the sales agency`s technology and intellectual property, (6) the sales agency`s ownership and legal structure, (7) the buyer`s financial insurance requirements, (8) the buyer`s due diligence process, (9) the terms contained in the buyer`s purchase contract, and so on. The agreement should include a indemnification provision that requires the aggrieved party to reimburse you for all damages, losses, taxes, fines, costs, and attorneys` fees that you may suffer as a result of a breach of representation. For example, if the seller guarantees that no other manufacturer owns any of the expiration conditions, which turned out to be false, and the producer sued the buyer, the seller would be obliged to compensate the buyer for the compensating damages. In order to facilitate the recovery of this damage, the contract could include a right of set-off against instalment payments of the purchase price. An agency`s insurance companies don`t like to be taken for granted in an agency sale. Most agency contracts contain provisions to notify the insurance company when an agency`s assets are sold or when the agency merges with another agency.

The agency contract often states that the agency contract ends when the insurance company does not agree to the sale, merger or transfer of assets. If the continuation of one or more of the agency contracts held by the agency for sale is essential to the company, contact the relevant companies with the seller`s written permission and ensure that a new contract is signed with the new owner of the agency. If the continuation of one or more of the Agency`s contracts with certain insurers is a condition precedent for the company, write this condition in the letter of intent and in the contract of purchase and sale. The payment of commissions and the payment of the return commission are made continuously on a continuous basis. The agreement should include clear conditions for the allocation of commissions due or payable, responsibility for the reimbursement of commissions, expenses, costs and liabilities, as well as the absolute dates of such commissions and the manner in which these accounts are settled. Paying attention to such details in the agreement will help avoid disagreements and misunderstandings after closing. Depending on the size and complexity of the purchased ledger and the relative knowledge of the buyer and seller, the buyer may only need the seller`s after-sales collaboration or may need more extensive support. The agreement should require the cooperation of the seller and define the scope and period of cooperation. Alternatively, buyers and sellers may agree to enter into a consulting contract that sets out certain obligations and compensations. Our law firm has learned a lot over the years.

In fact, I keep a journal of things I need to pay attention to based on the attributes of a client or their agency. If you have less experience conducting due diligence, you probably don`t know what you don`t know. This can be dangerous if you spend a lot of money on an acquisition. Once the buyer has purchased the ledger, he will want to protect himself from competition, solicitation and disclosure by the seller that could undermine or destroy the assets he has just purchased. The agreement must include assurances and guarantees, for example promises. B every part that some things are true. For example, the buyer wants it to declare and warrant that it was authorized and authorized to operate as an insurance producer at the time the expiry policies were issued, and that it has not received a significant number of letters of intent not to renew in the last twelve months, thereby reducing the value of the assets to be acquired […].