Know your options

When you’re on a road trip and take the wrong exit, you can usually get back on track and reach your proper destination without losing much time. But there are no ways to reroute your path if you take the wrong exit from business ownership. There’s no way to make up for lost ground. As a result, you need to know all your succession options and their implications for buyers and sellers.

A recapitalization strategy is the change of company ownership, value or stock from an owner to relatives, employees, management, key producers or others. It provides the seller with cash needed to exit for retirement or other reasons while leaving the business in the hands of people who see that it continues operations. In a leveraged recapitalization, the buyer or buyers borrow funds from a lender in order to purchase ownership, utilizing the assets of the agency as collateral. Here are the key benefits a leveraged recapitalization offers in a succession plan.

Autonomy. A leveraged recapitalization keeps ownership with the chosen successor after the transaction and keeps the seller engaged during the transition. In alternative scenarios, like with equity and mezzanine investors, other parties may be involved and have a say in the decision making and operations.

Lower taxes. Ownership can be slowly transitioned to buyers through the sale of stock and tax burdens can be reduced for sellers and buyers if deals are properly timed and structured. In the case of a leveraged recapitalization, buyers can purchase stock by obtaining a loan that is supported by future renewal commissions.

Continued productivity. Customers and employees who are connected to an insurance business are likely engaged because they are satisfied with its services. If an agency business is sold over a period of time to a family member or employee, providing the buyer or buyers a controlled transition to gain ownership, it helps ensure the continuation of the services, operations and success that keep stakeholders happy and the business thriving.

Living legacy. Instead of potentially settling on a buyer, owners can perpetuate with people who who’ve grown the business and want to see it continue. People who care about maintaining its reputation, how employees and customers are treated, community involvement, etc. Agency aggregators often offer attractive money for businesses, but preservation of a company’s vision is important to many owners. A leveraged recapitalization that makes purchasing the business a viable and affordable option for relatives and employees makes this a possibility that might not otherwise exist.

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