2001 Best Practices Study

Analysis of Agencies with Revenues Greater Than $10,000,000

P ERPETUATION For these Best Practices agencies, perpetuation not only includes the transition of ownership, but also the transition of the management and operations of the firm as well. Of the two, these agencies generally find the most challenging to be the perpetuation of the operations and management of the firm. If an agent is able to bring in and develop young talented managers and producers, they have a variety of ways to perpetuate the ownership of the agency (i.e., internal perpetuation, third party sales, mergers, etc.). On the other hand, if they cannot recruit and develop talent, the options available for the perpetuation of ownership of the firm become much more limited. Very few of these agencies would identify their ability to perpetuate the operations and management of the firm as a strength. These firms report a number of challenges, including the difficulty in finding new employees, the difficulty in training and developing future leaders and the difficulty in finding individuals that have the desire and wherewithal to effectively run the organization and transition its ownership. Some of the most successful of these Best Practices agencies have recognized that their ability to attract young talent into the organization not only better positions them to perpetuate the operations of the firm, but it is also one of the best ways to add value. As was addressed previously, many of these firms have set as a target and goal to be the employer of choice, creating an environment where the most talented employees would like to spend the balance of their careers. The perpetuation of ownership has been handled more effectively with some of these Best Practices firms transitioning the ownership to third parties (i.e., financial institutions, insurance consolidators or other agents and brokers). At the same time, others have successfully perpetuated their firms internally, transitioning ownership to deserving key employees through the use of a variety of vehicles, including employee stock ownership plans. The ability of these firms to successfully perpetuate internally came about as a result of excellent advance planning, senior management’s willingness to sell at a discount to the firm’s full fair market value, and a buying group willing to assume some level of risk. As a result of their ability to perpetuate the ownership internally, many of these firms view private ownership to be a competitive advantage in retaining key employees as well as to attracting new employees in the future.

“Perpetuating the talent within this organization is one of the biggest challenges we face. We work hard at it, but we’re not where we need to be.” “We would not have been able to successfully address perpetuation unless we invested a lot of energy and effort in preparing for it a number of years ago. The advance preparation gave us the ability to get everyone onboard, build the organization, prepare financially for the transition and execute it on a timely basis. We are evidence that internal perpetuation can still work.” “For us, the successful perpetuation of this firm resulted from our sale to a financial institution. Not only did the financial interest of the former owners get addressed, but we have a partner that is in a position to provide additional resources, including the financial wherewithal to continue growing and developing our operations.”

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