2001 Best Practices Study

Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000

P ERPETUATION

“We must get bigger and better if we plan to stay independent.” “For many years we never considered the problems of “repurchase liability” of aging shareholders. It’s all we think about now. We want to stay independent, but also want this to be a good investment to those who choose to invest.” “We accidentally found our perpetuation in a couple of young producers who have proven to be superstars. But we have also made them very successful. I guess that is win-win.” “If you do not actively think about perpetuation from the beginning, you will likely end up sold to a bank, broker or the competition. We don’t want that.” “There is never enough time to plan. It is, however, one of the most important things we do. Communication, consensus among owners and common goals are essential to our success.” “Our last round of planning resulted in a number of major decisions that are having significant impact on our clients: we agreed to hire a powerful claims manager, we agreed to purchase a new agency automation system, and we decided to terminate a couple of people that should have been terminated a long time ago. They are the best decisions we have made in a long time.”

The ability to transfer ownership from one group of shareholders to the next is a challenge for any business. For the agency business, many have found that the transfer of ownership requires careful planning and many years to accomplish. Creating ownership paths for key employees from all areas of the agency is an increasing element of successful planning. Many of the leading firms are starting to think about this issue much earlier, and are incorporating the need to transfer ownership into the strategic planning process. Younger producers want to know what the long term plans for the agency are, and whether perpetuation of the ownership to them is part of the plan. Finally, many of the firms realize that if reinvestment is not a critical part of the future of the agency, internal perpetuation will not be possible.

B USINESS P LANNING

Many agencies are investing more time and effort in the planning process that ever before. The strategic planning process is becoming a defining practice of the most progressive agencies. The decisions are increasingly tough – whether to hire new producers, to buy books of business, or to invest in new areas of expertise – and making a mistake can be quite costly. Annual strategic planning is increasingly common. Often, the pace of taking care of customers does not allow for much planning along the way. Without this time of focused planning, the decision making process becomes unclear and the focus of the daily business operations loses its meaning.

“Fail to plan? Plan to fail.”

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