Opinion of Value - Book of Business
Purpose
Today, many agency owners and producers are selling or buying books of business. Very often the value that is
established is based on just a "gut feeling" rather than a well thought out calculation. Guessing the value of a
book of business can cost the seller hard earned and deserved income if the value is too low. If the guess is too
high, the buyer may never make a profit from the book purchased. The astute agency owner or producer will get
an appraisal from a qualified insurance agency appraiser rather than rely on the multiple of revenue approach or
a "guesstimate."
Strategy for Opinion of Value Determination
Oak & Associates will provide an Opinion of Value of a book of business for you. A book of business is
defined by us as insurance accounts totaling less than $350,000 in commission and does not include any assets.
Oak & Associates performs Fair Market Valuations on larger books of business or an agency purchase.
Some of the techniques used for the Opinion of Value of a book of business are similar to the techniques used for valuing an agency. Valuations that use a multiple of revenue ignore variation in profitability and risk. Two books with the same revenue may vary significantly in both the risk that profit will be sustained, as well as in the actual profit margin. Oak & Associates uses several methods and the Consultant is able to "box-in" the value with a high degree of confidence. However, an Opinion of Value differs from a Fair Market Valuation in complexity. The profit determined for the Opinion of Value is based on the creation of a profit center and relies heavily on industry standards for expenses rather than creating a pro forma income statement from historical experience. Therefore, an Opinion of Value is based on the profit that a "typical third party" should generate rather than the pro forma profit a specific agency could generate from this book.
What You Will Receive from Oak & Associates
Oak & Associates will conduct an on-site or phone interview with the book's producer (or owner) to measure
risk and to determine the sustainable earnings capacity of the book of business. We will then establish a profit
center based on industry standards, historical experience and the consultant's judgment. You should expect to
receive the written Opinion of Value report in about two or three weeks.
What You Need to Send Oak & Associates
- Three years of financial statements (income statement only), if available or tax returns
- Most recent month "year-to-date" income statement and prior year same period, if available
- Completed Book of Business Questionnaire
- Insurance Book of Business Reports
The completed Book of Business Questionnaire and financial information would need to be received prior to the interview. Any management reports the firm has can be substituted for the information requested in the questionnaire. The completed questionnaire helps us better understand the unique features of the book of business, as well as the areas of risk which affect value, such as key markets, key accounts, unique expenses and any special producer requirements.
Costs
Oak & Associates will provide you an estimate for your project. The cost of an Opinion of Value for a book of
business will vary based on complexity and reasonable completeness of financial records. Most are in the
$3,000 - $4,000 and our hourly rates are $250 for the Consultant and $100 for the Financial Analyst.