2001 Best Practices Study

Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000

P ERPETUATION

“We are well positioned for perpetuation of the agency, both financially and operationally, because we have invested significantly in young production talent.” “Our lack of a younger generation of talent will make it likely that we will seek a larger partner within the next five to ten years.” “Remaining privately held remains a key goal for our organization. As long as there are key people interested in owning the stock of the agency, and the selling shareholders accept a reasonable price for their shares, the profitability of the company should support ownership transfers.” “The key to good business planning is to stay on top of the annual plan and keep the key priorities in front of people constantly.” “We do an annual planning retreat with the owners and business unit managers. Experience has shown that a simple plan, that is well communicated, can be an invaluable management tool.” “A good business plan must be a work- in-process at all times, updated whenever necessary to take into account changes that are occurring.”

With the large number of owners typically represented in agencies of this size, agency perpetuation becomes far more complex than with smaller agencies. With more than simply one or two owner’s objectives to consider, perpetuation planning becomes even more critical to the long-term survival of the agency in a fashion consistent with the desires of the agency’s owners. At a time when both internal and external perpetuation options abound, it is critical that agency owners work to ensure a unity of purpose. The Best Practices exhibited by agencies in the area of perpetuation include: developing of a formal perpetuation plan (including buy-sell agreements), maintaining open and honest communications with partners and potential partners, using of Employee Stock Ownership Plans (ESOPs), staying committed to leadership development, planning financially well in advance of any major ownership transitions, maintaining appropriate levels of key person life insurance, keeping up-to-date on agency valuation trends, obtaining annual appraisals of fair market value, and continually seeking out and communicating with potential perpetuation partners. Very few Best Practices agencies of this size find themselves without some type of a formal business plan. Given the sheer size of these organizations, the numbers of employees, markets, and customers they serve, and the myriad competing business opportunities and strategies that exist, success without a well- developed plan is virtually unthinkable. A majority of these agencies have formal plans that are updated (and tracked against) on a frequent basis. Other business planning Best Practices are: including key carrier partners in the planning process, using third-party business plan facilitators, incorporating feedback from all levels of the agency in the planning process, communicating the plan throughout the organization, keeping a perpetuation plan up-to-date, establishing and tracking against operating budgets, and attending large agent roundtables to solicit peer feedback. B USINESS P LANNING

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