Variations on the parable about the goose that lays the golden eggs exist throughout the world. The point of the parable is that if you find the goose that lays golden eggs, feed him, treat him well and reap the benefits of your great luck. If you kill the goose expecting to reap the reward of her production all at once all you will get is one meal of cooked goose. If you find the goose that lays golden eggs you are best off not being greedy and enjoying the benefit of the golden eggs as they are produced.
Many agents find themselves in an enviable position. They earn a good living, albeit a stressful one, by helping many clients protect their assets. And doing so over a full career brings many clients who continue to support the agency owner through their renewals, forming a basis of considerable value to the insurance agency owner.
For many of us our agencies are our “Geese that lay the Golden Eggs”. We find the gosling. We raise it and feed it and watch it grow larger. At some point the eggs it lays become ‘golden’ in that they provide both current income and future value in our agencies.
But too many agents try to reap the benefits of their agency value before they are ready, selling the goose even though it is capable of laying many more golden eggs. Will someone pay us well for “selling the goose?” -Absolutely. But unless you have no children or successors to take over the agency and continue to enjoy the fruits of your labors your decision to sell your agency because of the high price being offered is a fool’s errand.
We were recently in an agency that was offered a price that was several times the revenue generated and many times the compensation the owner achieved from the agency’s operation. Their question to me was, “Why shouldn’t I take advantage of this wonderful offer?”
The agency owner was 54 years old, had no debt and was realizing over $300,000 in annual income, far more than he ever expected to achieve. The price offered him would have been equivalent to many years of his income. He had a 30-year-old son and a 25-year-old daughter. He was assured that they would continue to have jobs with the buyer. A multi-million dollar offer and guaranteed positions for his children – what more could he ask.
I asked him how long he expected to work if he didn’t sell the agency. He responded, 10-15 years but he would slow down when the kids took over. I asked him for his growth rate – around 7 percent per year. And he was taking about 20percent of the agency’s revenue for himself. Then I asked him if his children would also be expected to work until at least 60 and he said, of course.
Crunching some numbers this is what I showed him.
If you stayed in the agency and paid yourself 20 percent of the revenue for just the next 10 years AND if you grew only half of your historical growth, you will take over $3.6 Million from the agency and STILL HAVE THE ASSET VALUE.
If you transferred the asset value to your children (with them paying you for it over time) after 10 years THEY will accumulate another $12.4 Million in income from the agency over the following 20 years (until their ‘next gen’ is ready to assume control – or not) allowing them to cash in the value of an agency three times its current size.
An offer for a healthy, profitable agency before an owner is required to sell is like someone offering you 12 golden eggs if you would sell him the goose that lays the eggs with which he will pay you. Your response should be that if I wait twelve days, I’ll have that many eggs and STILL HAVE THE GOOSE, AS WELL!
When do you sell an agency?
- When you lose your health – God’s way of telling you to re-prioritize your life, or
- When you lose your heart for the game – you no longer enjoy the business, your clients, your employees, etc., or
- When you want to turn the ownership and management of the business to the next gen, staying to support and counsel them, or
- when you are ready to retire, have no perpetrators and want or need the cash out of the agency to help support your future.
Don’t be tempted by the offers that abound for the Goose that Lays Golden Eggs.
PS – many buyers offer to keep children or long-term employees in their on-going roles. But neither you nor the employees can guarantee sufficient satisfaction from their continued role to keep them happy enough to stay. Many buyers change the way the business operates and make continued employment difficult or untenable for the folks that you might be protecting.
Reprinted from The PIPELINE, the national newsletter for agency principals. The PIPELINE is published by Agency Consulting Group, Inc., a leading consulting firm for independent agents in the U.S. for over 35 years. Call 800-779-2430, E-mail email@example.com, or visit www.agencyconsulting.com for information about the content of this article or PIPELINE subscription information.
This article was published in the January 2020 edition of Colorado Insurance News (COIN). To view more articles and read the whole COIN, click here.