Factors That Impact Insurance Brokerage Valuations
Insurance brokerages are multi-faceted businesses, and how much they're worth is likewise a multi-faceted question. Here are some of the main factors that can impact insurance brokerage valuations.
Physical Assets
The foundation of any business valuation must take into account the business's physical assets, for assets could always be sold in the event of liquidation.
Insurance brokerages aren't nearly as asset-heavy as businesses in some other industries, but insurance brokerages nonetheless frequently have at least a few goods that could theoretically be sold. For example, brokerages might own:
- Buildings
- Plots of land
- Furniture
- Computers
Of these, a building and the land that it sits on is often the most valuable asset that a brokerage would own. This is one reason for brokerages to consider purchasing a building rather than leasing office space, so they might take the building's and land's prices into account when valuing the overall brokerage.
Annual Revenues
The annual revenues are an accurate gauge of a business's sales, for revenues are generated by sales. Brokerages might boost revenues both by selling insurance policies to new customers and getting existing customers to purchase additional policies.
The higher a brokerage's revenues are, the more the brokerage is worth. Whether revenues are increasing or decreasing can also indicate whether a brokerage is gaining or losing market share, and either trend could affect the brokerage's valuation.
Net Profits
While annual revenues show how strong or weak the sales of an insurance brokerage are, they only show one side of profit calculations. In order to figure out what the brokerage actually makes — its net profits — expenses must be deducted from the revenues.
Common brokerage expenses can include personnel costs, building maintenance/rent, software costs, marketing expenses, and more. These use up the majority of revenues in almost any business, but there will hopefully be some revenues left after all expenses are paid. What is left are the net profits.
"Net profits" is often the primary number that's used to value a brokerage, for this is how much a buyer could expect to make off of the brokerage itself.
Brand Name
How recognizable an insurance brokerage's name has some impact on valuation. The name of a brokerage usually isn't as important as the name of a consumer product, but a recognizable name can be a benefit in any industry.
How much value a name adds to a brokerage's valuation will depend partly on whether a website with the brokerage name in the URL is available.
For more information, turn to a company such as Insurance Agency Appraisal.
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