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Agency Valuation Challenges

Providing a valuation on an agency is something we get asked to do from time to time. There can be a variety of reasons why you require a valuation, and it is worth thinking about the relationship between your reason and your value. Recent reasons include: 

  • Sale of half of the business to an incoming business partner
  • Matrimonial property settlements
  • Sale of the entire business in a deceased estate
  • Sale of the entire business into a family trust
  • Sale of the entire business at a future date

Firstly, the immediacy of the transaction is vital. If the transaction is, effectively, "now", then it is simply a market view of what would be paid today. On the other hand, if you are considering a future sale then a discussion of value should incorporate the potential to add value before the anticipated sale date. 

The nature of the buyer is also critical to the valuation. An incoming business partner must consider the motivation of the continuing partner, and how they will work together. There is a real risk that one partner could be affected a lot by the work of the other. Soft issues will need to be addressed.

Also, in related parties there are transaction costs to consider. A partner buying out half of a business will probably avoid many transaction costs and has the advantage of familiarity with the business, reducing risk considerably. 

Multiple valuation approaches can help to shed light on the factors at issue. The two most common approaches; multiple of renewals, and capital value of profit, should be done together. They may differ significantly, but help a lot in the case of insurance brokerages to show whether the salaries of main participants are related more to new business or in-force business. 

Having a market-based valuation method puts you on much safer ground for most transactions. 


Your Sales Technology Stack

For people responsible for adviser technology in larger advice businesses (say, five or more advisers), dealer groups, and insurers there is an acceptance that the idea of a single, 'do-everything' system, is not really the goal. Some, still hankering after the simplicity offered by 'one system' manage to reach the magical single digit by ignoring the other systems that they use.

You need only unplug one to expose the limits of such a view: switch off email, switch off the mortgage application tool, terminate your website, or kill your bulk mailer app. The reality is that by accepting the fact of multiple systems you can begin to tackle the problems associated with multiple systems, providers, technologies, interfaces and so on with greater clarity and practical effect.

  • How will you get data to move between these systems?
  • What training is required to get a single view of the customer when aspects of interaction may have been dealt with by different systems?
  • Which database will be your single source of truth about the customer?

Best Before Dates

There are lots of systems that we know need to be replaced: at insurance companies, dealer groups, advice businesses, and here at Chatswood too. The problem with a system is that it is connected - it takes inputs from here, it produces outputs there - whether it is as humble as a paper form, or as complex as a whole stack of IT. Replacing something that is used, and connected, entails cost and disruption. It is easy to put it off. But when you do replace it (and we've replaced all the tech we use in Quality Product Research, at least once, some parts twice in four years) then you realise some tremendous benefits. 

So read this piece by Seth Godin on sticking a best before date on the troublesome systems you know you need to replace. Put a date down, then start to schedule the necessary tasks. It's a beginning. Link

Retirement Planning App by Wealthfront

There is a theme around the office here which is that traditional needs analysis tools are a bit broken. They've growth like topsy - I have one on my desk which is a paper form some 40 pages in length. I doubt it has ever been properly completed. More and more organisations are trying to find fewer data points, access them in ways which are more reliable than human memory, and also take less time and effort. When we do that we get data we can actually use in planning. Path, by Wealthfront, looks like a good approach along those lines. Link. Hat tip to Tim von Dadelszen.