Understand the Value of an Insurance Brokerage —Mercer Capital White Paper

Most Business Owners Understand Interim Cash Flows.  But Terminal Cash Flow May Be Most Important: More Detail on Standards of Value. 

Lucas M. Parris at Mercer Capital has authored a white paper at Mercer Capital that posted last month titled Understand the Value of an Insurance Brokerage that guides consultants through the process of selling out, selling in [transferring ownership to heirs], putting together buy-sell agreements, valuations for financial reporting and other ownership transfer scenarios.      

Soft market or hard market, it is important for insurance brokerage owners to have an idea of what their business is worth. A lack of knowledge regarding the value of your business could be costly. Opportunities for successful liquidity events may be missed or estate planning could be incorrectly implemented based on misunderstandings about value. In addition, understanding how insurance agencies and brokerages are actually valued may help you understand how to grow the value of your business and maximize your return when it comes time to sell. The purpose of this whitepaper is to provide an informative overview regarding the valuation of insurance brokerages and agencies.

Ultimately, writes Parris, owners will get two returns from their business – “interim cash flows” and “terminal cash flows.” Interim cash flows might be your salary, your benefits, and your dividends. Most owners know what these are and what you can do to influence them. However, an owner’s biggest cash flow may be the terminal cash flow – when she or he sells the business.  Are most owners managing their business in a way that increases its value  or not? Do they even know?   

Understand the details:  Download the full paper here. 

Value per Share Depends on How Much of a Business You Own