The family discount?

Selling your insurance agency to family can be a rewarding outcome to transition your life’s work to the next generation. One of the biggest challenges when selling your business to children is determining a fair price for the sale. You don’t want to burden your children with debt, but you also need to count on the proceeds to retire comfortably. It’s a difficult balancing act that entails financial and emotional considerations. Additionally, insurance agencies are like snowflakes—no two are identical. Therefore, setting the right price can be a challenge.

In our experience, the most common approaches to determining a sales price are getting a professional appraisal, following a set formula and basing the valuation on your specific needs.

Professional appraisal

When selling your agency, there could be a lot of emotion. An objective appraisal can reduce the emotions and stress of setting a purchase price for your children. Many factors go into determining a sales price: revenue, expenses, client demographics, types of insurance, carriers, customer concentration, etc. Comparing agencies is extremely challenging! That’s why hiring a professional to appraise the agency can be very useful and provide the buyer and seller with peace of mind.

In many cases, the biggest deterrent to getting an appraisal is the cost. Reputable appraisals can cost somewhere between $10,000 and $20,000, depending on agency size. If that’s too much money, at the very least, we recommend getting a market value assessment from an M&A consulting firm. They will potentially waive any fees with the hope that you’ll select them to sell your agency.

An important aspect of an appraisal is that it will provide a sense of what an outside buyer might be willing to pay. Since your child may not have the scalability to absorb overhead costs like a large agency backed by private equity, they may not be able to pay the premium price that an outside buyer will offer. The professional appraisal will help determine how much of a family discount you are willing to accept.


Agency owners who are absolutely set on remaining independent and want to keep the agency within the family can forgo the appraisal process and set a formula to determine the sales price. The formula is typically tied to a multiple of generated revenue. From our experience, smaller insurance agencies tend to use a multiple of top-line revenue, while larger agencies will focus on a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization). Typically, the formula is based on current and prior year results.

 6/30/21 – 6/30/2220212022 projection
True gross$541,390$528,924$534,256

Above is an example of a calculation for a smaller agency’s value, where the buyer and seller calculate a range using a multiple of two to three times gross revenue. The buyer was hoping to purchase for a 2x multiple, and the seller was hoping to get closer to a 3x multiple. They ended up meeting near the middle and agreed to a $1.3 million purchase price.

The formulaic approach is simple and can work well with smaller, close-knit family agencies. The challenge of a formulaic strategy is that it may lead to mispricing because it doesn’t account for many critical factors related to an agency’s success. Factors such as culture, staff, organic growth, client demographics and retention are important when determining an agency’s value.


What’s your number? How much do you need, after taxes, to support your desired retirement lifestyle? This is where a solid financial plan is needed. Many agency owners would like to provide their children with a discounted purchase price but can’t afford to, based on their lifestyle needs. Prior to any sale taking place, we strongly encourage agency owners to go through a comprehensive process that incorporates an in-depth needs assessment to determine how much they truly need from the sale of the agency.

Armed with the knowledge of what you need, you can determine if you can afford a discount off the appraised or formulaic method. Additionally, it will provide confidence in determining the right structure and timeline for a sale.

Setting a price for your insurance agency is more art than science, especially when selling to family. Most agency owners find the best results when utilizing a combination of the above methods to determine the price. When done well, both parties are set up for financial success as they enter the next phase of their financial lives.


Jim King

Jim King

Partner, Wealth Advisor

Jim leads the Insurance Professionals Practice Group. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. Jim's focus on creating financial blueprints for his clients has earned him recognition as a "Five Star Wealth Manager" by Chicago Magazine. Jim joined the firm in 2004.


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