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AGENCY VALUE

AGENCY VALUE. Independent Insurance Agents & Brokers of SC 114th Annual Convention – Savannah, GA Jon Persky, CPA, CIC, PHR. Do You Have a Perpetuation Plan?. When to Retire?. Average Life Expectancy 75 years Time Sleeping - 25 years 50 years Your Youth - 20 years

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AGENCY VALUE

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  1. AGENCY VALUE Independent Insurance Agents & Brokers of SC 114th Annual Convention – Savannah, GA Jon Persky, CPA, CIC, PHR

  2. 1 Do You Have a Perpetuation Plan?

  3. 1 When to Retire?

  4. Average Life Expectancy 75 years Time Sleeping -25 years 50 years Your Youth -20 years 30 years Time Working -15 years 15 years Infirm / late aging -10 years 5 years Time driving, cooking, lines -3 years Days left to do something fun 730 1 Tick, tick, tick…

  5. 1 Personal Objectives

  6. 1 Five Methods of Perpetuation

  7. 2 Why Sell?

  8. 3 Why Buy?

  9. 3 Buyer vs. Seller

  10. 4 Agency Value

  11. 4 Agency Value

  12. Present Value of Future Earnings Revenue Stream • Return on Investment (ROI) • Multiple of Earnings (EBITDA) • NOT Revenues!!! 4 Methods of Valuation

  13. Value of any business is its future earnings power. Value can only be determined by a pro-forma estimate of its continued earnings power under the circumstances. Remove or change any conditions (owners, location, growth, profitability) and the value changes accordingly. 5 Key Issues

  14. Five years of pro-forma earnings under stable operations. Discount for the value and risk factors derived from the past profit picture, balance sheet review, and inherent risks within the business. Value is reduced by a working capital requirement (based on the most recent operating year). Tangible Hard Net Worth of the business is adjusted to eliminate assets those that have no tangible value. This Hard Net Worth is added (subtracted) to the value. 6 Present Value of Future Earnings

  15. 6 Present Value of Future Earnings

  16. 1. Values the business through a formula that determines the time necessary to recoup a capital investment through an accumulation of earned surplus according to pro-forma earnings projections. 2. Value is reduced by a 30-day working capital requirement. 3. Tangible Net Worth of the business is adjusted to eliminate intangible assets. This is added (subtracted) to the value. 7 Return on Investment

  17. 7 Return on Investment

  18. 7 Return on Investment

  19. Rule of Thumb: 5 – 7 times EBITDA Retroactively adjust most recent year-end 8 Multiple of Earnings (EBITDA)

  20. 9 Risk Factors

  21. Level of active participation of owners in sales. Level of active participation of owners in service. Age of owners. Are retiring owners the decision makers? Age and experience of staff. Sales staff. Marketing. Number of critical accounts. Collections. 9 Risk Factors

  22. 10 Let’s Make a Deal

  23. 10 Let’s Make a Deal

  24. 10 Conclusion

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