Stepping Stones to Purchasing An Allstate Agency

By Paul Clarke

If you’ve decided that the life of an Allstate agent is the life for you, some advance planning will help you proceed with an informed perspective. Whether you are an existing Allstate agent or a new agent, you’re taking a big step when you decide to acquire an Allstate book of business. Not all agencies are created equal, so it’s critical to choose the purchase opportunity that best matches your specific circumstances and vision for your future. Answers to the following questions will serve as stepping stones to your goal of becoming an exclusive agent positioned for success and prosperity:

1.	What is the book of business worth to me?
2.	How will I pay for the book of business?
3.	Which purchase opportunity is best?

What is the book of business worth to me?
Determine the value of a book of business. Market value isn’t the only requisite method for valuation. Every book does not have the same value to every buyer. You will need to determine how much a particular book is worth to you.

Example: A small agency with 800 policies may be appealing to an existing agent looking to merge, because its purchase will grow the existing agency without significantly increasing overhead. In this situation, the agency owner is ‘padding’ their income by merging a small book. However, a book of this size is unlikely to provide more than $20-25K in annual salary for a first time purchaser — not a viable choice for someone looking for an agency to serve as his or her main source of personal income.

Now that we have determined that everyone has a unique perspective when it comes to the value of a book of business, let’s look at the primary factors that play a key role in the decision-making process when making an offer to purchase.

Be reasonable when setting your personal salary. If you have already established a career in the insurance business and are accustomed to living on $80,000 a year, don’t expect to suddenly cut back and be able to survive on an annual salary of $50,000. This kind of drastic lifestyle change is very difficult and probably unrealistic, be practical about how much you will need to live on. The revenue that remains after you take out overhead expenses and your salary is what will be available to service your debt. Once you have established what your salary requirements are you can start determining the size of the book you need to buy.

Perform an accurate cash flow analysis. An agency produces a stream of renewal income that must be managed. To arrive at the true net of the business, you will need an accurate cash flow analysis. From the seller’s annual commission income, you must have enough cash flow to cover the true overhead expenses (rent, staff, etc.), your personal salary, which we determined above, and your loan payment. When reviewing the Seller’s historical operating results, it will be necessary to adjust customary expenses (such as meals, travel, depreciation), and to make non-customary adjustments (such as subtracting out wages paid to family members who do not work in the agency). It is also a good idea to build in a cash flow cushion as your agency will certainly realize monthly volatility in the amount of renewal commissions received, and the agency you have purchased may not receive an achievement bonus. Borrowing a large sum of money on a break-even cash flow basis is a dubious proposition.

Determine the price you can afford to pay. Now that you have completed a cash flow analysis, factored in a realistic wage for yourself as the owner and all the true overhead expenses of the business, you can determine what price you can afford to pay for the book. If the annual net amount available to service debt is $100,000, you certainly cannot afford a $10,000 monthly loan payment. Talk to lenders who are knowledgeable about Allstate agency financing. If you know you can get 10-year financing at 9.5 percent, you can back into a reasonable purchase price.

How will I pay for the book?
Put yourself in a favorable position before applying for financing. Lenders are impressed by agents who know their business and are confident about the success of their upcoming acquisition. Be prepared to talk to your lender about the strong points of your transaction. It will also be helpful to present yourself as the most desirable financing candidate. In order to do so:

Check your account history to ensure that your credit record is as clean as possible.
Reduce your credit card exposure as much as possible.
Be prepared to provide a detailed explanation of any delinquencies appearing on your credit report.
Prepare a detailed résumé highlighting your successes.

Find the right lender. The success of your business will depend in part on the quality of the financing you receive. You need a seasoned lender that possesses a thorough understanding of the Allstate business and has experience funding agency acquisition loans. Select a lender who can accommodate your financing needs, and provide a uniquely qualified management team and highly experienced professional staff who are committed to helping you succeed both in the short term and the long run. The loan should have a fixed interest rate with simple interest and no hidden fees. Securing a lender who can provide an appropriate loan term is also a necessity during this time of rising book prices, as books will not cash flow on a 5 or 6-year loan term. It’s important to have your accountant or financial advisor review your financing offer to ensure that you are getting a fair deal.

Examine the criteria your lender will consider when approving a transaction. When you talk with your lender about the rates and terms that are available, you should know what factors will affect their decision. According to industry standards, a good candidate for financing has:

two years of experience in licensed insurance sales or other significant business experience
a credit rating of 650 or higher
a personal financial statement showing that you maintain a minimal credit card balance and are current on all taxes and other loan payments

After you’ve made your case for loan approval and supplied the necessary documents, you can anticipate timely feedback from your lender about what they will finance toward your purchase of an agency.

Take time to outline the specifics of your deal.

1.	What is your intended purchase price?
2.	Do you plan to put any money down?
3.	Do you intend to retain all of the staff?
4.	Will you be making any changes?

What do you intend to do to ensure a successful transition?

Which purchase opportunity is best?
Be ready to undertake an honest appraisal of yourself and the purchase opportunity you are considering. From a personal perspective, what load can you bear to take on? Remember, you are looking to improve your quality of life and invest in your future. If you are required to take on multiple locations or a satellite agency, the practical logistics of management may present a formidable physical and mental strain. Be sure to think realistically about your own temperament and the work that will be required to operate your business successfully. Make sure you will be well compensated for your efforts. The last thing anyone wants to do is work harder for less money. A win-win situation for all parties involved should be the goal.

In your search for the right agency, you are almost certain to find abundant purchase opportunities. Some of the opportunities you encounter will appear to be bargains, and others you will find reason to reject. Taking the time for honest, thorough self-assessment and information gathering will help you sort out the possibilities and establish a clear path to a successful acquisition.

This article certainly has only scratched the surface of the variables that come into play when looking to purchase an Allstate agency. Location, loss ratio, retention, etc., are all very important factors when buying a book. My goal is to simply give you several key factors to consider when evaluating a purchase opportunity, and the important perspective that all books are not created equal for all individuals.

Paul Clarke is Chief Operating Officer of PPC LOAN, a nationwide lender with over 10 years of experience in providing financing for Allstate agents. Paul and his staff can be contacted at (800) 456-2779 or you can visit PPC LOAN online at ppcloan.com.