If you have an insurance agency business for sale, knowing the value of your business is extremely important. However, this won’t be possible unless you regularly review your financial statements, income statements, and balance sheets. The last thing you want is to make a bad financial decision based on business valuation mistakes.
What Are the Biggest Business Valuation Mistakes?
Choosing the Wrong Business Value Type
The goal of the assessment should be the basis of your business valuation. There are three business value types: investment value, liquidation value, and fair market value.
The investment value is typically used to analyze a merger or acquisition and is particularly helpful for potential investors. Alternatively, liquidation value refers to the net value of an organization’s physical assets and is applied when liquidating the business. Since fair market value speaks of the price that an asset sells for on the open market, it’s usually used when selling the business.
Failing to Measure the Right Business Value
The value of your insurance business should accurately depict its earning power, it should be based on the cash flow and not on accounting profits. While profit determines taxation, cash flow is the direct measure of your agency’s financial health.
Assessing the Wrong Risks
Different types of industries use risk assessment to determine the likelihood of loss on a loan, asset, or investment. When it comes to business valuation, risk assessment plays a critical role. If you fail to consider the specific risks of your insurance business, you’ll end up with a misleading evaluation.
Failing to Include Certain Operating Costs
Operating costs refer to the ongoing expenses incurred to keep your insurance business running. Operating costs should be included in your business valuation. These costs include employee benefits, insurance coverage, salaries, printers, computers, chairs, and desks.
Do You Have an Insurance Agency Business for Sale?
The team of experts at Energia Consulting Partners, LLC would love to assist you with the sale or acquisition of your agency. Contact us today to learn more about what we can do for you.