Different lenders underwrite acquisition financing a little differently; however, they all typically want to stay under 6 x EBITDA on leverage. The reasoning is fairly simple…cash flow. As we’ll see below, agencies don’t cash flow well when they leverage themselves over about 6 x EBITDA. One of lenders’ key underwriting metrics is something called the debt coverage ratio, which is a measure of the cash flow cushion over debt payments.
When agency revenues start to fall year-over-year, there is usually a reason. Sometimes the trend can be reversed, such as if it is tied to an economic cycle, but quite often the downward trend is unstoppable. In our experience, a steady decline in the business is typically an indicator that one or more of the agency principals are spending less time running the business. The enthusiasm and competitiveness that perhaps once drove growth in the business has waned.
What I’ll discuss in this post differs from most of my other ones. The discussion is an amalgamation of my studies, experiences and observations from working with business owners over … Continue reading
A key to running a profitable insurance agency is understanding your target financial model, i.e. how you allocate your revenue to various expense items. If you were not aware, every business … Continue reading
One of my favorite hobbies is studying marketing trends and tactics. Insurance agents have a wide range of marketing tools and options at their disposal. It’s the reasons that the … Continue reading
A new online extortion cyber threat called CryptoLocker could affect anyone who has a computer, and especially people who use Facebook. If you activate the program, a message appears and … Continue reading
We occasionally run into insurance agencies that have independent contractor producers that own the rights to their book of business. These arrangements almost always create a problem with selling an … Continue reading
The value of an insurance agency is nearly all intangible assets tied to the book of business and relationships with customers and insurance companies. This is a much different asset … Continue reading
After reviewing hundreds of financial statements of property and casualty (P&C) insurance agencies, we have found that accountants often do not understand how agencies operate, which can lead to misleading … Continue reading