The perpetuation plan for a three-year-old insurance agency shouldn’t look much like the plan for an agency whose owner expects to retire in three years. Both agencies should be thinking about perpetuation. They just shouldn’t be thinking about the same things.
Perpetuation planning is ultimately about what happens when the current owner or owners are no longer running the agency. While decisions about future ownership may be years away, there are things owners can do at every stage to keep their options open.
When you’re building the agency
For a new agency owner, the priority is building a viable business. At this stage, perpetuation planning is less about choosing an eventual successor and more about protecting what you’re building. If you unexpectedly couldn’t run the agency, who could keep the business operating? If there are multiple owners, is there an agreement addressing what happens to an owner’s interest in the event of death, disability or another unexpected departure?
Good business practices established early can also make future transitions easier. Keep accurate financial records, establish repeatable processes and make sure critical information doesn’t exist only in the owner’s head. You don’t need to know your eventual exit strategy to begin creating a business that can continue without you.
When the agency is growing
As an agency adds employees, clients and revenue, perpetuation becomes a people question as much as an ownership question. Who is developing into a leader? Who understands more than their own role and shows an interest in how the agency operates as a business?
Give promising employees opportunities to develop:
- Include them in planning and decision-making.
- Give them responsibility for important initiatives.
- Let them build relationships with carrier partners and important clients.
- Expose them to the financial and operational side of the business.
This doesn’t mean identifying your successor years before you’re ready. People and plans change. The goal is to develop leadership depth so the agency isn’t dependent on one person.
When you can see the transition ahead
At some point, perpetuation stops being a distant consideration and becomes a series of decisions. Does the owner want to keep the agency independent? Is there a family member, employee or other principal interested in ownership? Is an outside sale more realistic or desirable? Does the owner want to leave completely or remain involved for a period of time?
The financial questions also become more concrete. Owners need to understand what the agency is worth and what drives that value. If internal perpetuation is the goal, potential successors need to understand what ownership requires and how a purchase could be financed. Accountants, attorneys, valuation specialists, lenders and other advisors can help owners evaluate the financial, tax and legal implications of their options.
When it’s time to make the transition
Ownership may change on a particular date, but a successful transition often happens over time. Employees need to understand what is changing and what isn’t. Carrier partners may need to be involved, and important clients may need reassurance and introductions to new leadership. If the outgoing owner has been the face of the agency for decades, announcing a new owner isn’t the same as transferring trust.
The outgoing owner also needs to let the next leader lead. A transition period can be valuable, but new leadership needs the authority to make decisions, establish relationships and begin shaping the agency’s future.
The plan should change as the agency does
Perpetuation planning isn’t something an owner completes once and files away. Successors change. Agencies acquire businesses or add partners. Financial goals evolve. Family members may enter or leave the business. What seemed like the obvious path five years ago may no longer make sense.
The questions should change along with the agency:
- Building: What happens to this agency if something happens to me?
- Growing: Who are we developing to lead this business?
- Planning a transition: What do I want to happen when I’m ready to step away?
- Approaching a transition: Have I given everyone involved enough time to make this work?
You don’t need to have the same answers throughout the life of your agency. Thinking about perpetuation at every stage can give you more choices when those decisions eventually need to be made.