Many agency owners underpay themselves in an effort to manage the books, pay their people better, etc. But you’re actually hurting yourself and the agency when you do that. Here’s why.
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Hey everybody, Drew McLellan here from Agency Management Institute, this week, coming to you from Louisville, Kentucky. You know, as we’re doing work with agency owners, thinking about a succession plan or their future, and we’re doing valuations for a lot of agencies, one of the factors that is downgrading the value of an agency, I think, is going to surprise you. So, one of the actors that actually contributes to the value of your agency is how well the agency owner is compensated. And that’s full compensation. So, that’s W-2 income, that is dividend income, that’s pass-throughs that you run through the business, it might be a defined benefits program, or your 401 contributions, but all of those add up to look at the benefit of owning the agency to the owner. Now, many of you are incredibly generous, which means that sometimes you take pay cuts or you don’t pay yourself as well as you should so that you can take better care of your people or you can keep more money in the business. And there is a fine line for sure, but one of the things that devalues your agency is if you are not taking enough money out of the agency as an owner. Because remember, think about it, if somebody’s going to buy your agency, part of what they want to know is what’s in it for them. They want to know what the agency owner compensation is. And so, in our valuation process, that’s one of the things that we look at, is what can the new owner expect for compensation? And the only way we can sort of figure that out is historical data of how you are compensating yourself. So it actually behooves you, both right now because you own the joint, but also down the road if you want to sell it, to make sure that you’re compensating yourself fairly and maybe even generously, because it will actually increase the value of your agency, long term. So, give yourself a raise. All right? I’ll see you next week!