In our initial M&A conversation with many owners, they’ve mad a false assumption that they have to find an outside buyer because their employees couldn’t possibly afford to buy their agency.
Beware of assumptions!
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Hey, everybody. Drew McLellan here from Agency Management Institute this week, coming to you from the historic Broadmoor Hotel in Colorado Springs, Colorado. So yesterday, Danyel and I taught the Sell Your Agency Without Regrets workshop. And one of the things that often surprises sellers is they sort of dismiss the idea that their employees could buy their agency because we know how much we pay our employees and we don't think they have a big bag of money and we know they don't have any rich relatives. So we assume that an internal purchase is outside of the realm or the reach of our employees. But the truth of the matter is, number one, the most successful and profitable sale for most agency owners is an internal sale. And number two, there are actually several funding sources that an employee or small group of employees can tap into to buy your agency. And so what we don't want you to do is assume that that path of selling your agency is closed to you because none of your employees have a rich uncle. So there are a couple of ways that you can do this that are actually very stable, very easy to do, and can be super profitable for you as the seller. The first and the most common one is the SBA has some incredible loan programs for employees, long term employees who've really proven that they already know how to run the business, that they already understand the functionality of the work that they are going to be the Great Successor or the chapter two to an agency ownership story. So the SBA is great loans for people who are sort of well vetted to be a business owner, and they can borrow up to $5 million in a ten year note. And in most cases, they have to come up with a down payment or part of the down payment. But after that, the business itself will sustain the loan payments. And so for a lot of buyers who are in their thirties or forties, this is a great way for them to become a business owner without having to tap into all their family resources. Another way that many agency owners sell their business to employees is a combination of bank loan and maybe some seller financing. So when I say seller financing at first agency owners kind of go, no, I don't want to hold the note. But honestly, it can be a very profitable thing for you to do if you do have confidence in the employee and you know that they're good at what they do and that they can run your business well, just like you did for all these years, that there are some ways to stabilize that risk and really minimize it. And by the way, not only do you get the principal payment, but you get the interest as well. So for an agency owner that is selling, let's say, $1,000,000 business, rather than getting $1,000,000, they can get about $1,500,000 by the time all the interest plays out. So there are lots of ways to structure an internal purchase. We just don't want you to discount or assume that that's not an option for you when for many agency owners, it's not only an option, but it's the best and most profitable option. All right. So if you're ready to talk about that, reach out. Otherwise, tuck it in the back of your head till you are ready to sell. Talk to you soon.