Agency Valuations, M&A, & Growth with Mike Mensch | Episode 119

One of Sean's insurance relationships joins us this week for an amazing episode on insurance agency valuation. Dissimilar to residential real estate, insurance agencies can pretty much be bought and sold with ease. Why? Because it's a standing book of business with number history and retention. What insurance owners tend to get wrong though is just how much their business is worth; that's where Mike comes in. Mike Mensch with Agency Brokerage not only breaks it down for our Bricks & Riskers, but he brings an immense amount of credibility, experience, and knowledge that is sure to impress you. Dig in!

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* Episode Shout-Outs *
→ Agency Brokerage: https://www.agencybrokerage.com/
→ Episode Sponsor, Property Management Redefined: https://gopmr.com/

📲 Contact Info 📲
→ Sean Mooney, Mooney Insurance Brokers: www.mooneybrokers.com/
→ Tim Garrity, The Tim Garrity Team: www.timgarrityteam.com/

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Transcript

SPEAKER_00 0:00

Well, ChatGPT said my agency is worth like 10 times revenue. The question often gets asked is like, I got an offer for my agency. It's, you know, 2x revenue. Is that a good number? I can only imagine like when people come to you uh with these similar types of questions. Are you j is that one of those m most maddening things that you might come across in your day-to-day? Sometimes I think I'm going mad.

SPEAKER_01 0:25

So one of our guys on our team is in those groups and he said somebody just the other day, somebody posted and and said, Well, ChatGPT said my agency is worth like 10 times revenue.

SPEAKER_00 0:34

Oh boy.

SPEAKER_01 0:35

Oh boy.

SPEAKER_00 0:36

Based on what maybe chat will buy your agency.

SPEAKER_03 0:39

Yeah, yeah, I don't think I don't think chat's got a checkbook. Welcome to the podcast dedicated to real estate, insurance, and building your business. Join us as we take you along our own business building journeys with additional wisdom from our network of local and national experts. Welcome to Bricks and Risk.

SPEAKER_00 1:07

This episode is brought to you by Property Management Redefined. PMR is not just managing properties, we're creating partnerships that build long-term success for property owners. John and his team can be reached at manage at gopmr.com or by phone 267-753-6005. Tim. Yes, John. Who's a good client for PMR?

SPEAKER_03 1:35

Property management redefined is looking for property owners who value three things accountability, reliability, and a results-driven approach. I want to maximize returns, but still provide client and tenant satisfaction.

SPEAKER_00 1:49

There's a lot of property managers out there.

SPEAKER_03 1:52

What does PMR do really well? Biggest thing is they're seamless and they're worry-free. So with that approach in mind, it allows the property owner to put their trust in PMR and know that the results will be there. The other thing I think a property owner is really going to value because they do it so well is that they have a local expert team boost on the ground, managing your properties and your tenants' expectations every day so that you feel good about your investments.

SPEAKER_00 2:19

We have millions of listeners out there. Tens of millions. If they want more information, how do they find PMR?

SPEAKER_03 2:26

Right here, guys. Reach out to John Sachs and his team at Property Management Redefine. Take good care of you. Hey everyone. Welcome to another episode of Bricks and Risk. I'm Tim Gardy. And I'm Sean Mooney. Today, Sean, we have a Florida boy from Melbourne, Florida. We have Mike Mensch, CEO and founder of Agency Brokerage. How are you doing today, Mike? Doing great. Welcome in. Thanks for joining us, Mike. Yeah, thanks for coming here. All right. So Mike is the CEO and a founding partner of Agency Brokerage Consultants. After almost 20 years, Agency Brokerage has completed over 3,000 formal agency valuations and over 500 agency MA transactions. Mike is a certified business intermediary and a certified merger and acquisition master intermediary. We're going to have to get into those. What started out as a career in chemical engineering switched to MA advisory nearly 20 years ago. Mike has been married for 25 years and is also a father of three. In his spare time, he's a part-time philosopher and aspiring writer. So, my first question how do you go from chemical engineering to insurance agency valuations?

SPEAKER_01 3:52

You have two polar opposite parents. That's the story. So uh started off following my dad and then realized I didn't really want to be a scientist and engineer and shifted and followed my mom. But along the way, people were telling me, like, you don't really seem like an engineer. You got a little bit too much personality. So they were right.

SPEAKER_00 4:22

Don't let that go to waste.

SPEAKER_01 4:25

All right, what kind of real estate did your mom do? Uh she ran this is all going all the way back in the 80s. She ran offices up near you guys in Bucks County. Um she ran a chain of offices, and then she was came. We moved to Florida and she did real ran some real estate offices, got into mortgage business, and then kind of at the end of her career got into MA and business brokerage. Very cool.

SPEAKER_00 4:50

Were they uh was your dad forcing you at any time to like go the way of science and engineering? He's like, pick up that Bunsen burner right now. Yeah.

SPEAKER_01 5:01

No, it's actually my mom thought it'd be better. Oh, really? Go do that. You don't want to do this. Go do that. Yeah, go work for somebody.

SPEAKER_03 5:09

Right, right. Yeah. All right. So let's talk a little bit about what agency valuation is and like why a brokerage owner would consider talking to anyone about it. Like, what is it exactly?

SPEAKER_01 5:20

Uh, what we're talking about is the market value of an insurance agency. So it's an asset that a business owner owns. You should have a good idea of what drives value in it. And as you're scaling it, you should understand what's going to drive more value. That way you're kind of planning out uh, you know, you don't want to like any asset, you've got to understand its value and you you want to increase its value over time. So that's that's the main thing. We go through, we do evaluation, we we talk to them about where they are today and what they can do to increase the value. A lot of the people we worked with, it's it's not like one and done. It's we're talking to them over the course of years and trying to give them feedback and direction. Okay.

SPEAKER_03 5:59

Well, my co-host to the right of me, um, he owns an agency. What advice would you give to Mr. Mooney if you're like, hey, what questions would you ask? What kind of advice would you give? I'm gonna put you on the spot here, Mike.

SPEAKER_00 6:13

You would need hold on, before before there, I think you would need a colonoscopy before you got into like how do you advise someone? Well, maybe I'll let Mike just pick up on that.

SPEAKER_03 6:24

Just let him pick up on that.

SPEAKER_01 6:25

Yeah. I mean, the so I'll start first with what we look at. We get fine, a couple years of financials, we get a breakout of the book of business. So we're looking at the quality of the book of business, looking at the growth rate, the profitability. That's kind of the high level. Um, you know, from what drives value, obviously, size, profit drives value, quality of our quality of the book of business and clients you have. The um one of the webinars that I do is talks about as you're scaling it, like the foundations of what you should be building. So it's one is strategy, one is the systems in the operation, one is uh the culture in your office, and the third one is the financials. Uh, because one of the biggest issues we find is uh agency principals are great salespeople, but when you get under the hood, their data is a mess. And and like if you're gonna get through a sale of the business, you gotta be able to prove out your numbers, and and so people often neglect like financials is probably one big area. And then even thinking about culture, like what you're trying to build, if if you're really trying to scale it large, you gotta you gotta you have to invest in developing the culture, and that's that's another area that gets under under uh worked on, I guess.

SPEAKER_00 7:40

Well, that's that's why they hire you, Mike. We uh go out and we get the sales in the door, and then we we don't really have the best uh handle on numbers and things like that. So that's why we come to you and you say, Right, you gotta do this, you gotta do that, you gotta do that. Position ourselves for the sale, right?

SPEAKER_01 8:00

Yeah. I mean, you know, when you're running a business, it's like, do we have enough money to pay the bills? Are we making profit? Uh and I get it. It's like uh, but when you go through an actual transaction, a lot of these big buyers, they gotta you gotta prove out all your production, you gotta prove out your book of business. And we I mean we've got clients that are, you know, we 10 million plus in revenue that have really bad data, really bad financials.

SPEAKER_03 8:24

Wow.

SPEAKER_01 8:25

And it's like you've okay, you got the strategy, you got the systems, that's all working great. That's why you're that getting that large. Now you gotta work on the other foundations to make sure that like you can track what you're doing and somebody can see, you know, all the production and see who's producing and everything like that.

SPEAKER_03 8:41

All right. So you've uh you've seen thousands of these. What would you say, like if you had to give like a sweet spot for like an insurance, you know, brokerage like like Sean's here? Um is there like a size of premium, like book a business that's very common when people start to consider, hey, you know, I've been doing this for a while, I've built it up, you know, maybe it's time for an exit at some point. Like, what what's common in in in your business?

SPEAKER_01 9:06

Uh that's always driven by the the individual, like when it's time, it's time for people. That's that's why, you know, when we work with clients, there's like no pressure because we know you may not maybe not ready today, maybe it takes 10 years before you're ready to pull the trigger. And so obviously retirement's a big factor for a lot of our clients, but life happens and you know, people burn out or they get tired of doing something, or they want to, you know, they get sick even. Uh so what motivates people is different. Over the last couple of years, the valuations have been really high, and that's motivating people because they see what goes up must come down eventually, right? So now's a good time to cash in. Um, but it it's different for everybody, really. Gotcha. Mike, there's any size that's buyers for an agency.

SPEAKER_00 9:53

Mike, there's uh we see it on I see it online with different um like uh like a Facebook group or something agent group that you see online. And you know, there the question often gets asked is like, I got an offer for my agency. It's you know 2x revenue. Is that a good number? I can only imagine like when people come to you uh and with these similar types of questions. Are you is that one of those most maddening things that you might come across in your day-to-day?

SPEAKER_01 10:30

Uh I think it's so one of our guys on our team is in those groups and he said somebody just the other day somebody posted and and said, Well, ChatGPT said my agency is worth like 10 times revenue.

SPEAKER_02 10:41

Oh boy.

SPEAKER_00 10:42

Oh boy. Based on what? Maybe chat will buy your agency.

SPEAKER_03 10:46

Yeah, yeah, I don't think I don't think chat's got a checkbook.

SPEAKER_00 10:50

Yeah. But okay, so like to kind of like peel back the onion on that, right? Like, like, can you talk us through that as an example and you know why this agency might get more than this agency or what kind of the driving factors when it comes to the sale? Um and on top of that, what maybe you've seen recently in terms of recent sales and and what those numbers might have been.

SPEAKER_01 11:21

Yeah. Uh the so profit is number one factor, like profitability, what we call pro forma E, but uh growth rate's important. You you're in the insurance industry, we've been riding uh a hard market, as they call, where premiums keep going up. Now that's softening over the last 12 months. So everybody's really looking at are you adding policy count versus just riding out the premium growth? So grow uh profitability, growth rate. And then underneath that, it's you know, the composition of the book of business is it with what we call A-rated carriers, national carriers that pay profit sharing, what's the nature of the clients? So you have good retention of clients because some types of business, like let's say on the commercial side, trucking, the retention's lower than other lines of business, and and then quality of staff. So starts first with profitability, growth rate, size, and then it's good, you know, then you dive down into the like what's what's the composition of the book and the team, and uh a lot of that drives like what type of buyers would be interested.

SPEAKER_00 12:23

But when you get specifically with profitability, I guess that my question on profitability is is that one of the more important key indicators? Because in my mind, um profitability for this agency might not be the same if you take that agency and move it over here as uh a piece of this larger agency. Can you maybe talk about that a little bit? Sure.

SPEAKER_01 12:47

So if one is a one in one case, you're buying a book of business, right? If you're strip, if you're stripping it out, getting rid of the brand, move you know, merging the book. Right. So you're buying a book of business, basically, which is a wasting it's really a wasting asset. You're buying the customers that exist, but you're not buying, you may not be buying the the operating systems and you know the this the whatever's driving, hopefully there's revenue growth and customer growth and all that. And so it's really a wasting asset. So in that situation, you you should be aware of like customer retention rate and you know what are you going to get from that book of business? What's it gonna look like in five years? The the deals we're mainly working on are somebody's buying the enterprise on you know as a going concern basis, so they're taking it over, keeping the staff, keeping whatever marketing systems. And so it's it's different because you're you're maintaining hopefully growth engine too, not just buying a customer list, really.

unknown 13:43

Okay.

SPEAKER_00 13:44

And are the and is the differentiation between the two a lot in those scenarios or just dependent upon the scenario?

SPEAKER_01 13:52

Yeah, um, oftentimes, you know, once you get to a certain size and then buyers stop looking at it as just a book of business, you know, maybe let's say a million of revenue or somewhere around there. Uh now they're gonna buy it as a standalone business. Yeah, they'll rebrand and integrate it to their company, but you know, you got standalone office systems, employees, and everything. But but if it's let's say $500,000 or less in revenue, uh oftentimes somebody's buying the book and just merging it into existing office, you know, maybe taking some staff with them. Uh but you know, again, the main one of the main things is are you acquiring a growth engine or are you just buying a customer list, really?

SPEAKER_03 14:32

So when you say revenue, just because I'm not an insurance guy, so but I've learned a lot about insurance by hanging out with this guy very frequently and talking about business every couple of weeks. Um, when you're talking about revenue, you're not talking about the size of the premium. You're talking about what the brokerage, what the office brought in from that premium. That's their revenue. Commissions. And then the commissions, let's call it. And then once you have that revenue slash commissions, then you obviously have to subtract all the expenses, you know, your office, your labor, your marketing, you know, whatever, you know, your lunch, uh, all the things, subtract all that off, and then that's gonna give you the profit. And that's that's basically you're looking at those major things first before you look at like the brand or the culture, or like am I correct in saying that?

SPEAKER_01 15:22

Correct. Yeah, yeah. So our first thing we're diving into is creating what we call a pro forma. So we're looking at the financials, it's all numbers, yeah. It's all numbers based. You know, every small business owner is like trying to minimize taxable income. So we're backing out all the personal stuff, and uh usually you gotta put in the you know, business owners are usually owner operators, right? So we have to put in a market compensation for the owner, and then that net number we call like a pro forma EBITDA, and that's what the valuation is based off of.

SPEAKER_03 15:52

Okay. Do you look at all right? So I'll I'll geek out a little bit more here. Keep going. Do you look at the captive brokerages as well as like the captive exclusive, let's call it, versus uh independent or both, or one of like the way I'm picturing it in my mind, I'm thinking if I'm independent, I'm probably talking to more someone like you because I don't really have it, I don't have a big brother, I don't have a big parent company, like it's my mom and pop business, let's call it. So I need an expert, a consultant in the industry who can look at my mom and pop business. Do the exclusive captive people go to their parent company, like a state farm, an all-state, whoever, to value their firm and then sell it to another state farm, allstate, whoever?

SPEAKER_01 16:41

So state state farm is cap is totally captive, they're company-owned. Um and so I'm sure they do have internal consulting, like how what's the best way to run your state farm office, but they can't sell their book of business. All state is more, we'll call it, it's almost like a franchise where Allstate sets rules and procedures and all that, and we'll they'll give them training, but you can sell your financial interest in your Allstate agency. The difference is we're dealing on the independent side in a world of strategic buyers, which is larger firms that are doing roll-ups and adding scale. In uh, like an all-state world, all state has to controls who can buy it. And they usually want somebody that's gonna be an owner operator mostly. That's what they're trying to get. Is somebody in there that's gonna sell policies, sell life insurance, and all that? So they're controlling that sale process because they get to pick and choose who's allowed to buy it. And and most of the time, they're not, they're trying to keep you know existing all-state agents from just acquiring a whole bunch of offices and running, running like a conglomerate. So it's it's a different sale process because in the independent world, nobody's really controlling it. Meaning, like you don't have a parent company that says yes or no. Right. And the buyers that we're dealing with are large, you know, strategic capital-backed buyers on the all-state side. You'd call, we call them like a financial buyer, somebody that's buying a job, they got to go get bank financing, that sort of thing. So it's two different processes, two different worlds. Interesting.

SPEAKER_00 18:12

Yeah, you don't have that same uh it's similar to uh like Erie. So sometimes you have to go to the parent company to get approval of the buyer. Like you can't just sell that to anyone. So there is uh you know a hands-on approach when it comes to the sales for those, versus being totally independent, like me, where I could sell it tomorrow and it doesn't matter who I sell it to, um, you know, who the buyer is. So a little different. Interesting.

SPEAKER_03 18:48

Um, one other thing I noticed on your website I thought was super interesting. So it says you you evaluate agencies, so it's like we're talking about right now, like evaluation, understanding what something is worth, helping the owner understand what it's worth, but that you also optimize agencies. Can you like explain like that part of your business? Like, what did you mean by optimize?

unknown 19:07

Yep.

SPEAKER_01 19:08

Uh so we we add we added consulting services to our our menu of items that we do for agencies. And the reason is there a couple of years back, I looked at like what are the recurring issues we keep saying with agencies? And one is what I talked about, which is they've just got really bad financial data, they're not using their management system correctly, or their accountant doesn't understand their financials, so their financials are a mess. And so the optimize is we have we offer a fractional CFO consulting service where we'll plug in with them or uh and do kind of look at where they are, set it, set a budget for them, work with them monthly. One of our guys does that. He works monthly with clients, helping them optimize their expenses, helping them set goals and kind of clean up all their financials. Um, so that's what it means. It's you know, it's really like exit planning almost like well, there's different scenarios. Exit planning is if you need to optimize your agency before you go through a transaction. Okay. And then sometimes he's getting in situations where it's like turnaround where their margin is really low. They're out the agency's operating at a really low margin for whatever reason, and he's kind of trying to help them turn it around and clean things up and change compensation plans or whatever has to be done.

SPEAKER_03 20:26

Hey everyone, this is Tim, your favorite bricks and risk co-host. But don't tell Sean. I hope you're enjoying this episode, and I'll get right back to it in a moment. Our audience grows through word of mouth. So if you would please take a moment of your time and give us a review on the platform you're on, that would be fantastic. Please also help spread the BR word by sharing your favorite episode with a friend. We greatly appreciate your time and trust. Now, back to the show.

SPEAKER_00 21:00

And I guess you've seen that a lot. Like you've seen um sellers come to you and say, Hey Mike, I want to sell my agency. And they have this expectation that I can sell for this. Because the guy down the street sold his agency for this. So that means I'm gonna get this, right? So I think it's an important piece where an agency owner might come to you and say, you know, what is my agency worth? And you going through all these deals and transactions, have a have a better than most understanding of what the real value is, can shine some light on it in terms of what that value is, and then it sounds like to me, you can offer put implement the different ways of getting the most for their agency, right? So they're not leaving meat on the bone when it's time to go sell their agency.

SPEAKER_01 22:00

Yeah, let me address that two ways. So the in terms of what it's worth, yeah, we do the valuation, we tell them what it's worth today. Our ability to help a client achieve the highest value is through the, you know, our process of taking them to market and helping to pitch the pitch their agency to different buyers. The but part of the valuation is looking at how ready are they to get through a transaction. And that's that's one area that agencies don't they they take for granted. Like they think, you know, I'm whatever revenue, whatever profit that makes me worth X. But the reality is you gotta prove your revenue, you got to prove all your client, your customer base. If you have producer relationships and those contracts are not written, or you know, you've got legal documents that have to be shored up because um, you know, there's a lot of agencies that just they take producers and they have different arrangements with them. Sometimes they don't have written agreements, sometimes their agreement doesn't define who owns the accounts. Sometimes the producer commission splits are not standardized, but if they sell to a big acquirer, they're gonna have to change that producer comp, right? So there's often a lot of things that need to be cleaned up before you can even get through a transaction. And that's that's one area that I think everybody takes for granted because uh it's not easy. Like, you know, if you've got a change, if you've got a handful of producers and you don't have agreements with them or they're at some unusual compensation rate to sell to a national firm that's gonna pay you top dollar, and they're gonna have to put everybody on a standardized plan. And so you're gonna have to address it sooner or later, and you're better to just take care of it early than like get to the altar on a deal and go to all your producers, like you're you're trying to close in two weeks and be like, okay, guys, I got a new plan for you. Sign right here, because uh you know that may not go well.

SPEAKER_03 23:51

Dude, that's what's interesting about that. I'm gonna go ahead and I'm gonna make an analogy here. Because I I always have analogies on this show for like make things more relatable, uh, at least to people in my world, because I'm not an insurance, I'm in real estate. And your mom would appreciate this. So there are people, someone's been living in their house for like 30, 40 years, and they're like, hey, Tim, I want to sell it. Okay, so I schedule the appointment, I go and I look at their house. And then I take a tour of their home as I always do. We sit down at the kitchen table, let's say, and be like, okay, what do you think your house is worth? You know, it's a great question to ask. One, I want to take their temperature, I want to understand what they really think this asset, because that's what it is, is worth. And a lot of times they'll do what you guys were just talking about. Oh, my neighbor down the street, two blocks down, you know, they got this. It's like, yeah, but their kitchen was from 2021 and yours is from 1992. So, like, those are apples and oranges. And then you're you're going through all this stuff with them, and there are always two options. You can just do the you can just do the basics. Like, you can just clean up your house, I'll have photos taken, I'll put a sign in the yard, and we'll sell it the way it is. Or you could paint, you could fix, you could declutter, you could update, you know, there's lots of you could rip the carpet out and do hardwood. Like I was trying to keep things to a minimum. But what's interesting about what you just said, like the optimization approach, you're going and saying, look, you have an asset, but it's only shining in this kind of light. It's not the best light. Like most people won't be highly attracted to your business as it stands today. But if you do these things, if you update the website, you know, if you clean up your numbers, like uh if your brand, which whatever it is, whatever they're trying to do to make their asset shine in the best light, well, someone's probably gonna be more inclined to pay more for it than they would when you originally saw it. So do you do like a lot of consulting on that end of like telling them these are some things that you can do to make it shine in its best light?

SPEAKER_01 25:54

Let's say that's what we try to do, but uh sometimes they listen, sometimes they're like, okay, whatever, we just want to sell. I'm done. I'm done. Yeah. Yeah, you guys, I uh uh you guys read that one article that I wrote where I talked, I made that comparison. Yeah.

unknown 26:12

Yeah.

SPEAKER_01 26:12

I mean, that's like uh yeah, if you sell, if you put your house on the market and you haven't fixed everything up, you're probably gonna get beat down when the inspection comes back. And like you're just setting yourself up for that type of uh renegotiation. And it's the same thing when you're selling a business. If you if you don't have good data where you can prove value numbers or you don't have good agreements or whatever it is, if you haven't prepared for the process, you're setting yourself up to get beat down when you get into it.

SPEAKER_00 26:38

Well, in a lot of those instances, too, is one of my famous lines that I use is you don't know what you don't know, right?

SPEAKER_01 26:47

I say that all the time. Yeah.

SPEAKER_00 26:49

It's like if you're an agency owner, and I think that's that's why people need to work with a professional, right? And I think I might have mentioned this before, is that uh in part of that article that you kind of mapped out for everyone, um you don't know what you don't know in this in the vein of maybe you could get more, right? You know, there's so many things that if you didn't work with a professional who's done hundreds or thousands of transactions, who's seen everything, you're not gonna know A on the front end, like what you're leaving on the table. You actually don't know what a good deal for your agency would be. And there's also, as you've seen, a lot of ways to draw up a purchase. Right? And I made mention this to you is that uh someone that I was tea talking to recently in terms of an agency owner had a uh five-year buyout on the back end or or or some sort of Yeah, explain that.

SPEAKER_03 28:01

So I don't think we've ever gone over this on the show.

SPEAKER_00 28:03

So there's a and I'll let Mike actually talk about this, but the point that I was saying and talking about this specific scenario was I think that and I didn't get all I didn't get the formal terms of the purchase, but it was probably in my guess is is a large number up front for the agency. So they agree to a they agree to a number of the agency. I say, okay, we're gonna buy it for this, and there's a contingency part of it on the back end for five years. And that could be dependent upon performance of the book. Oh, wow. That could be uh uh like an NFL player. Yeah, sort of. Yeah. Um if you do that, you get a bonus. So I'll let Mike talk about that in terms of how these deals are so wildly different. And if you're not working with someone that's seen them all, you really don't know what a good deal might be or might not be.

SPEAKER_02 29:11

Yeah.

SPEAKER_01 29:13

Correct. Yes, you don't know what you're you don't know what's out there, what the out what it might be. But even beyond that, like the uh you know, we we get clients that get offers from from buyers direct, and they're like, they just look at the number, right? And they're like, hey, this you know, this is like whatever, 20, 30 times my EBITDA. Yeah. And it sounds insane because it's like two to three times what it should be worth.

SPEAKER_00 29:36

Yeah. Right.

SPEAKER_01 29:37

And then they get I get the offer. I'm like, okay, it's like six times up front. And if you grow and they grow in like all if if if 10 years from now, it's gonna be, you know, you you'll you may get that on the back end. Uh and so it's yes, you don't know unless you go to market, like same thing in real estate, unless you go out there and see what offers are out there, you you won't ever have a good idea of what it's worth. But two, it's like if you don't understand that how to digest an offer that's put in front of you and break it down and read it, then that's very dangerous. Cause again, like I I've we got clients that they'll get these offers that are crazy. I'm and I break it down. I'm like, you're getting like six times up front. That's that's terrible. And like the rest of it is if this, then that, you know, like pie in the sky projections and that probably never gonna happen. Um so I see that a lot. But it's kind of like the the old adage, you name the price, I'll set the terms. Like, oh, you want a million bucks, I'll pay you over you know, 30 years.

SPEAKER_00 30:35

Well, that's like I was just thinking in my head was you go to buy a car and you're like, how much do you want to pay a month? And we'll get you into that monthly payment, and and who knows like what you need up front, and what you know, is that a is that a five-year loan? Is that a 10-year loan? Like, like there's so many things on the back end that you might not be aware of that could make this what seems like a really good deal up front because of that 30 EBITDA, but it's an absolutely terrible deal by looking on all the fine print.

SPEAKER_02 31:06

Right. Yeah, yeah.

SPEAKER_01 31:08

It sounds like it's uh uh you know astronomical, but when you break it down, it's actually below market what you're really getting.

SPEAKER_00 31:15

So is it true then when they do say if it's too good to be true, it is?

SPEAKER_01 31:20

In most cases my mom always said right, yeah.

SPEAKER_03 31:24

Oh, that's awesome. Um, all right, so a tip that you gave for the uh bricks and riskers was think about what you're building. Go a little bit deeper on that tip. Why that tip?

SPEAKER_01 31:39

So that goes back to what I call the four pillars of like thinking through what's the what's the strategy? Like who is your ideal client? You know, how are you gonna attract, retain, and find them? Who's your ideal employee? How are you gonna attract and retain them? Yeah. You know, what are the systems you have to build to be able to continue to scale it? What's the culture you need to develop to build to to you know, build the business that you want to see in 10, 20 years? And then what are the financial considerations you have to take into effect, like running it? You know, a lot of a lot of business owners run it like it's their personal bank account, right? Whatever cash flow comes in, I take out. Well, if you're trying to build a a much larger business, you got to treat it like a separate, like you're a steward at a company, right? And your objective is to reinvest the capital to scale the business. And so it, you know, it's thinking long-term, where do you want to be, and then making sure you're doing all the things you have to do to get to that long-term goal. And one of the other things I talked about too is like um a person as a business owner, you have to evolve as the business evolves. Like we all generally start off in sales. Well, then you know, you get to a certain size, now you got to manage people, and then you got to manage marketing and processes and all that. And you're kind you have to continually evolve because if you don't evolve, then the business is just gonna get stuck and it's gonna hit a ceiling, and you're not gonna be able to break through until you yourself evolve and be able to shift your focus from where you were to where you need to put your attention.

SPEAKER_03 33:13

You've been you've been building your business for about 20 years. Does this cross your own mind just for your for agency brokerage? Like thinking about like what am I doing, like the optimization, like things like that. Like, how often do you think about this kind of stuff like for your own business and where you're going with that?

SPEAKER_00 33:33

Yeah, every day. I I think I think you see it in reverse, Mike, is like what what value can you bring to your clients? And I think adding in a fractional CFO as an offering for your clients is a way that you probably have changed to adapt and to and to provide an additional service that like offer more value. Yeah.

SPEAKER_01 34:00

So maybe that's something. Yeah, because it the for us, it's we we do the evaluation, we see the issues, we say, okay, here's your things you need to fix, go fix them, we'll talk to you, you know, one in a couple years and redo it. But that doesn't happen, right? So the the the thought was how do we get into the weeds and help them fix the problem? Because clearly if they're running with you know bad AMS data or whatever it is, they don't know how to solve that problem. And so there are other, you know, there was a we had a list of four areas. One was like financials, one was um uh production management, meaning that includes like uh producer relationships, it includes like uh looking at their book of business, and and you see that it's spread across like 50 different carriers instead of like get them teaching their sales team to trying to hone it in. And so there was a and there was a number of them, like the what I call the a bad business model where they're just going after the wrong type of client. In the insurance industry, that might be like selling just auto insurance. And so you're buying auto insurance leads and you're selling them. And we've had agencies come to us that were like a couple million of revenue and they had good revenue growth, but their profitability was terrible, and they didn't realize that they're on a flywheel where their cost of sales is like 70% of the revenue and the retention is like 60%. So you're constantly just churning. Yeah, they're thinking we're gonna scale and we're gonna get to profitability, but the reality is they're not gonna get there because they're just churning customers and spending a lot of money to get them, get new ones. And so business model was one of them. But we were looking at all these issues and saying, okay, how do we help? Or or who do we plug in to help them figure it out? And and so there were different solutions we came up with, but the ones we could take in-house, we wanted to take in-house, and the other ones that was partnering with other firms, like AMS vendors that you know that specialize in that, or uh, I've got some strategy consultants who are good at marketing and like helping agencies figure out what's their ideal customer, how do they go and find more of them? How do they cross-sell them? You know, things like that. So it was really, yeah, we want to help. And and then if we can't do it ourselves, who's the right resource? And then developing a relationship with firms that can help.

SPEAKER_00 36:14

Do you have a um a success story that you can think of off the top of your head where it might have been uh a rehab project for you where you uh started with an agency and engaged with them, and you maybe mapped out and said, Hey, if you're looking to sell this in the next couple years, I would recommend doing this, this, and this. And ultimately saw it through and then the sale, and it was just something that kind of lined up that that really shine a light on what you guys deliver.

SPEAKER_01 36:50

So we uh we started this consulting service about a year and a half ago. Um, we're working with one client who I've been working with for many years, but uh I plugged in, he plugged into our CFO service. They're probably gonna go to market this year, they're pushing nine million revenue, but uh we've enhanced their margin. Probably I don't want to say we have working with the client, they've enhanced their margin by like five to ten percent. Wow. So that's on a nine million revenue firm, that's that's a nice value lift.

SPEAKER_00 37:23

Well, it it it we're it's it's it's it's great on both ends. And it's great for them because they're going to have more offers, they're going to have better offers, and the final sale is gonna be a better number, right? And for you guys, it's better too, because you've helped them get to this point, and that final sale number is gonna be a larger sale number. So to me, I look at it like it's a win-win for for you and the client.

SPEAKER_01 37:59

Correct. Yeah.

SPEAKER_03 38:00

That's awesome. Um, all right. One thing we like to ask too is biggest struggle, and for your biggest struggle, you put focus and delegation. First, I want to just tackle why delegation, why has delegation been a struggle for you?

SPEAKER_01 38:15

Do you guys know the disc personality type?

SPEAKER_03 38:17

Yeah.

SPEAKER_01 38:18

Okay. So I'm a DC, which means I uh that that defaults me to be a workaholic that that tries to get everything perfect. And so Yeah. Yeah. So I can I can relate of sorts. Yeah. So that's why. I mean, it's uh you know, if a project comes in front of me that it requires me to dive into and it like, you know, doing a financial analysis or something like that, I'll usually just dive in and and try to do it myself. Uh it's a personality flaw.

SPEAKER_00 38:47

Well, I think you'll find this a lot with people that uh started a business. It like you started ABC, right?

unknown 38:57

Right.

SPEAKER_00 38:57

I started my agency. There's there's a certain mindset you have. You know, it's different if you get in and you just buy an agency and you start day one with a thousand seated accounts, right? When you dig your business out of the ground and put your blood, sweat, and tears into your business and you've become accustomed to delivering for your clients day in and day out a certain level of service, it's a little bit harder to delegate when you've gone through that gauntlet. Would you agree with that?

SPEAKER_01 39:34

Yeah, it is. It's hard. That's I mean, as an owner, it's hard to let go of certain things, and but that's what you have to do if you're gonna keep growing it.

SPEAKER_03 39:42

I've made the example many times before of a pizza shop owner. You know, someone wants to start a pizza shop, and really what it comes down to, they have a checklist of things you have to do. Okay, get a space, you know, need the ovens, need the ingredients, need a sign. What they really want to do is they just want to put their hands in the dough. They just want to put their hands in the dough and they want to make pizza the way they've always imagined it to be, and then they start selling them. And then when they start selling these pizzas, the people eat it, they're like, this is like the best pizza I've ever had. So what goes through that person's mind is like no one else can put their hands in the dough but me. And when you think that way, and again, lots of people, I've had this thought many times. I'm not the same on the disc chart as you, but when you only think about I'm the only one who can make the pizza, there is a ceiling, not only to your business, like how many pizzas you can make because there's only so many hours in the day, but also you're probably gonna get to a point of maybe being overworked or over-leveraged because you're just gonna get to this spot where you're like, I'm not getting to where I want to go. So I want to go back to the delegation, knowing that that's a flaw of yours. What what do you do or what have you done to work with that flaw?

SPEAKER_01 41:03

You make you're making this personal now. Let's yeah, let's go, Mike. Let's do it. Uh-oh.

SPEAKER_00 41:10

Tread lightly here.

SPEAKER_01 41:13

The uh so I mean, I've I'm I've developed so like this is all just reflected from the point of view of what a business owner has to do, because I'm I know what I have to do, and I'm working towards that. So you've got to document processes for doing things, step one. Then you have to teach people how to do it, then you have to give them authority to do it, right? And so those are the things I've been leaning in on the last couple of years is making sure we document how things should be done and then teaching, holding people accountable, but giving them the authority to go run with it and get it done. Um, so that that's what I've it's been a challenge for me for many years to like let go, but that's what I'm working on over the last couple of years and making progress towards. Um the uh there's a book called The E-Myth that came out a long time ago. Michael Gerber. Yeah, and he talks about that, you know, how so many business owners are really technicians at heart. They want to make the pizza, yeah. Right? But you can't scale a business if you're making all the pizzas. And uh, and so there's kind of a a transition or an evolution that has to occur. And he did he did a good job of going through the I read that book a long time ago, but I wrote an article about it too for the insurance industry. It's like there's the technician, which is the the owner that's an expert at like policy reading policies, understanding coverages and all that. And they're they're great at customer service, they're great at the technical details. But what we normally see is their agency hits like a revenue ceiling, and that's that's like when I see that personality type, I know that's going to be the ceiling. Like maybe it's 500,000 of revenue, maybe it's 800 somewhere in there. And then the next type is what I call the Rainmaker, which are the ones that love sales and they love networking, and they're great at going out and bringing clients in, and they bring in a support team under them that's really servicing, but they're out there making a rain. And usually that business hits a ceiling at like maybe nowadays, 2 million in revenue, something like that. And then there's one I call the serial entrepreneur, they're really good at building systems. And so they can, you know, like let's say you build a personalized agency and you have these marketing systems that are driving leads, and you got the staff doing their job, but their their struggle is they're not good at building a team. So it's a flat organization, and those ones hit a ceiling, maybe two, three million of revenue, something like that. And really the ones that the people that are able to keep scaling their business, or the next one, which is kind of like the empire builder mindset, where they know at some point they got a level up and their mind, they go from focusing on customers to focusing on systems to then internally focusing on developing their team, developing leaders and and people within their team that then can lift them up even higher. And so I know that's the route that you have to go. And uh I'm I'm working on it.

SPEAKER_03 43:57

Love that. That's awesome.

SPEAKER_00 43:59

Is it common? Uh when you it's when you lay it out like that, it's it seems to me like you kind of need a yin and a yang when it comes to business, business operations, business ownership, and that sort of thing. Is it is it common that you've seen it where maybe the person or the agency owner transitions uh from one role to another? Or is it common where you see it where uh an agency owner knows their shortcomings or knows their strengths and brings in another uh partner to kind of balance out and give them something that they don't have within?

SPEAKER_01 44:39

Uh it's you're right. To keep scaling, you need partners that fill your partners, or it's harder to hire people and that are gonna have the ownership mentality to fill those gaps. But um, someone once told the guy that ran a 50 million revenue firm said, you got to have an inside guy and an outside guy. Like you've got to have two different personality types, one driving the revenue and one making sure you know everything's working on the inside. And so, yeah, I I think generally it's gonna take more than one personality type to meet all those needs. Um, but it is a struggle to hire to fill, you know, you're better, you know, like you have to for anybody to take ownership. Sometimes you gotta have a have to give them equity or they have to be an owner.

SPEAKER_02 45:23

Yeah.

SPEAKER_01 45:24

So it's hard to sometimes hire somebody and that's gonna be an employee to fill the needs that you have.

SPEAKER_03 45:30

Totally agree. Yeah. And uh the quote you gave us, super simple but very powerful. You reap what you sow. Why that quote?

SPEAKER_01 45:40

Oh, I think it's applicable in so many ways. And so it's it's yeah, it it you know, if you're in sales, you reap what you sow, you go out and throw a lot of seeds, plant seeds, and you'll reap a harvest. Um, but it's also what are you, what kind of what what are you prospecting? Because you're gonna reap that harvest too, if it's not a good prospecting. Uh uh I you know, I said you know the men I mentioned I'm somewhat philosophical, but it's it's true in life too. If you've fill your mind with trash or you fill your mind with good thoughts, you're gonna reap that. So I I think it's a very applicable across a lot of areas.

SPEAKER_03 46:16

Fantastic conversation, Mike. So before we shut this one down, why don't you tell our listeners and watchers where they can learn more about you and everything you got going on?

unknown 46:25

Yep.

SPEAKER_01 46:25

Our website is agencybrokerage.com, easy to get to. And uh, we've got content there. You can reach out to us. We also do, if you sign up on our newsletter, we do webinars every other month with some good content that it's worth tuning into.

SPEAKER_00 46:40

Is there an ideal client that uh you work with time and time again that just seems to be a super good fit?

SPEAKER_01 46:48

Uh probably like any professional, a client that appreciates what you tell them.

SPEAKER_03 46:53

Yeah.

SPEAKER_01 46:54

Sums it up.

SPEAKER_02 46:55

Love it.

SPEAKER_03 46:56

All right. Well, that's all we have for this one, folks. Thank you for tuning in again to another episode of Bricks and Risk. See you next week. Thank you for joining us on another episode of Bricks and Risk. Our goal is that you walk away with one or two valuable nuggets, and we greatly appreciate you sharing your time with us today. You can find all BR episodes on Spotify, Apple Music, YouTube, and anywhere else you get your podcast content. Until next time, keep learning and keep growing.