How an agency valuation can drive business growth 

You spend a considerable amount of your time and energy supporting your clients as they navigate challenges, growth, and unexpected changes. But do you put this same time and energy into growing your own business?

Anyone looking to buy or sell a business generally has a value or ‘number’ in mind when they start the process, but oftentimes, a valuation or appraisal of your business can be an important tool to help support your price. An accurate valuation can provide not only your market value but also performance metrics and benchmarking that can make your agency stand out.

Valuations are a method for determining the market value of your agency and can be obtained on an as-needed basis or annually, depending upon your strategic initiatives.  Here are some top reasons why you should consider a valuation as a strategic tool for your agency:

• Valuations are essential for mergers and acquisitions - No acquisition deal is possible without negotiation, and a good-faith negotiation isn’t possible without both parties knowing the true value of the business(es) at play. Whether you're selling your agency or looking to purchase a new one, a valuation should be a top priority for everyone involved.
• Valuations help secure financing - If you’re looking to purchase another agency or a book of business, capital may be necessary to make it happen. An accurate, detailed valuation can be a helpful component to position your agency well to get the financing you need from your banking partner.
• Valuations empower and attract top employees - Knowing the value of your business and benchmarking your agency’s performance to peers can help in identifying and attracting new talent to your agency 
• Valuations guide strategic planning - Working with an experienced consultant during the valuation process uncovers both strengths and opportunities to improve your agency. It’s through this process that you can identify areas where you can be more disciplined and what strengths you can embrace. It can assist you in having a clear picture of the cash the agency generates your overall financial picture and identify areas of growth opportunity. 

Valuations typically provide a market value for your agency using a combination of methodologies.  The most used methodologies are as follows:

• Income Approach - Discounted Cash Flow: This is an estimate of your agency’s future cash flows discounted to present value at a rate of return appropriate for the investment
• Market Approach - The Guideline Company Method: This method is based on the theory that the value of a privately-held company can be reasonably estimated by comparing it with similar publicly traded companies. 
• Market Approach – the Merger & Acquisition Method: Whereas the Guideline Company Method reviews day-to-day trading prices of securities in comparable publicly traded companies, the Merger & Acquisition method reviews the prices at which entire companies or operating units of companies have changed hands.

No matter what stage of the business lifecycle your agency is currently in, a valuation can be an extremely helpful tool in helping your business achieve its goals. For more information on valuation methodologies, read the article “What's your insurance agency worth?”