KANSAS CITY, Mo. — While the pace of mergers and acquisitions of employee benefit brokerages have slowed 21% in the first quarter of 2018 compared to the same time period last year, many agency owners find themselves at a crucial crossroads.

Insurance agency and brokerage owners continually face a barrage of phone calls urging them to sell the business, leaving many agencies wondering how much they are worth. Before answering that question, owners need to decide if they are truly ready to sell.

The benefit brokerage space continues to pursue mergers and acquisitions. Since the start of the year, 142 insurance agency mergers and acquisitions were announced in the first quarter of 2018 compared to roughly 180 during the same period last year, according to figures from investment banking and financial consulting firm Optis Partners. Of those M&A deals in the first 90 days of 2018, 51 were firms that deal in employee benefits.

This is driving up the price of the merger deals. Jim King, owner and wealth manager at Chicago-based Balasa Dinverno Foltz said agencies with $1 million or $2 million revenues are selling for almost seven and a half times more than their annual revenue.

“If we go all the way up to $10 million in revenue, we are seeing that firms are selling for nine to 10 times more,” King said at the National Association of Health Underwriters annual conference that took place here in late June. “Because the demand is so great, the percentage of dollars has increased from 70% up front to 90% consistently.”

Also see: What’s in a retirement readiness score?

An important part of the decision is knowing what they want their lives to look like after the sale is complete. The gap that exists between where the owner is today and where they want to be will impact when they sell and what they need to do to increase the value of the agency before negotiations.

Too many times the agency owners jump when the phone rings. Owners are better off taking time to understand what they need to fund their futures. The earlier they start, the more prepared they are to navigate the sale process.

While the profit for selling a brokerage is high, the biggest mistake King said owners make is determining what their firm is worth, because many owners are not ready to retire once their company is sold.

Instead, there are considerations owners should make before they agree to sell their brokerage.

Taking inventory financially and emotionally

Owners must have a vision of what their retirement looks like. Once the company is sold many owners do not want to retire right away and the acquiring firm does not want the owner to leave the brokerage immediately either. Firm owners should expect to stay with the acquiring company for at least three years after the acquisition to oversee changeover in leadership, employee transition and client retention.

During this time it is important for the owner to determine what interests or hobbies they can tap into following retirement, make sure their spouse shares the same retirement vision, determines how much is needed to support their lifestyle and think about how to transition out of the business once the acquisition process is fully completed.

When it comes to retirement planning brokerage owners need to know how long they plan to work before retirement, how much they spend on average, how much they have saved over the course of their life, how much money would reasonably work for their retirement and how long they expect to live.

Knowing who is coming into the business and what the growth rate is like within the company — especially if it is a family run brokerage — can shape the longevity of the owners work life as well as determine how much the firm is worth upon selling the business.

Wealth is not measured in the amount of liquid cash an owner possesses alone. Over the course of their career they should have a diversified number of stocks and bonds, which drive 93% of their return on investment.

Understanding the tax implications

Tax rates are continuing to go down, according to the IRS. However, because of itemize reduction changes by the Tax Cuts and Jobs Act, tax liability has increased. This means if an owner lives in California and their annual income is $500,000 per year, pay $50,000 a year in state income tax and pay $25,000 in property tax, only $10,000 of income tax is deductible, where in 2017 $75,000 was deductible.

Determining where someone retires to also is taken into account. Income tax on IRA pension is zero in 11 states; there is no estate or inheritance tax in 31 states and there is a gift tax in Connecticut.

Portable exemption — if one spouse dies and does not make full use of his or her federal estate tax exemption, then the surviving spouse can make an election to pick up the unused exemption and add it to the surviving spouse’s own exemption — is only available in Delaware and Hawaii.

The lowest tax exemption is $675,000 in New Jersey and an estate and inheritance tax does exist in New Jersey and Maryland.

“The key takeaways owners should know is spend time when they go home to sit down and develop what really looks like, and know the exact sale price they need and invest smart,” King said.

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