As an Allstate agency owner, you have plenty of business advantages. You own equity in the business you build, earn repeat revenue from policy renewals, and have the potential of unlimited earnings.

Allstate is one of the most recognized and respected names in the industry, so you have plenty of credibility, and Allstate doesn’t charge fees like other companies. There’s even a buyout clause for owners who are ready to retire or leave the industry. Allstate will buy you out at 1.5 times the worth of your annual book of business commissions. But is that the best deal for an agency owner when you’re ready to sell?

Allstate’s termination payment is a nice safety net to have if you’re thinking about selling your agency. But as experienced business brokers, we understand that you might be able to get a lot more value out of your business. Here’s how buyers look at companies they’re thinking about acquiring.

Buyers look at sales (and recurring sales, in the case of an insurance agency’s annual renewals.) But they make an offer based on what’s known as Seller’s Discretionary Earnings, or SDE (sometimes also called Total Owner’s Benefit.) That’s the calculation of the financial benefit a full-time owner and operator would derive from their business on an annual basis. Brokers look at the last few years of financials to determine net profit from income tax returns plus recurring and non-recurring income and expenses, and the owner’s compensation.

Since different owners might organize a business differently, SDE gives them a chance to see how much is available to them to work with. They might choose to hire a general manager rather than run the business themselves, for example, or they may have economies of scale available to them from other corporate resources.

Allstate’s buyout offer is based solely on your book of business without considering other aspects of your company. You might own or lease a building in a great location, for example. You have office equipment and other tangible assets that have their own value. You may already have advantageous vendor agreements in place for vital business services. A prospective buyer will look at the total value of your company, not just your commissions, when making a decision about how much to offer.

We’ve seen agencies sell for multiples of 3-4 times the SDE. Let’s do the math. If your recurring revenue (renewals) is worth $500,000, Allstate’s offer would be $750,000 (1.5 X commissions.) But if a broker can get you an offer from a qualified buyer at 3 - 4 times your SDE of $300,000, you could be looking at over $1 million. That’s a significant increase, even after you pay a broker’s fee.

The only way to know what your business might be worth on the open market is to put it on the open market. We have a national database filled with motivated buyers, and we have the marketing tools to find the right fit for your agency pretty quickly. That’s something no corporate office, even the best of them, will be able to do.

If you’re thinking about retiring or selling, it makes sense to talk to an experienced business broker before you accept the termination provision from your corporate partner. We have the ability, tools and expertise to let you know what your agency is really worth, and we work to get you top dollar. You have options to consider.

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