I have had the fortune of interacting with hundreds of business owners over the years. Going even back as far as my college days when I bar tended at a yacht club, I’ve always tried to take note of successful [...]
In my post from October, I discussed debt coverage ratios and EBITDA multiples. Now let’s talk about projecting cash flow. I’m shocked how many buyers make offers without figuring out what the cash flow will be with financing. I’m not alone either. I’ve spoken with many loan officers that deal with the same issue. This article is long overdue.
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 the last 10 years. During that time, I have analyzed [...]
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 does have a financial model. There are resources available [...]
This presentation discusses some best practices for growing (and managing) an independent insurance agency based on our interaction with agencies around the country as a valuation and merger and acquisition advisor.
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 insurance brokerage business is one of the best for marketers. [...]
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 tells you to pay money or your computer will be [...]
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 agency. The arrangements usually evolve from the principals’ desire to [...]