Fair Market Valuation

Purpose
An agency owner will obtain a fair market valuation for a variety of reasons, including an agency sale or merger, buy-out of a partner, estate planning, tax purposes, annual ESOP review and divorces.

Outline
The astute agency owner will get an appraisal from a qualified insurance agency appraiser rather than rely on the multiple of revenue approach. When a valuation uses a multiple of revenue it ignores variation in profitability and risk. Two firms with the same revenue may vary significantly in both the risk that profit will be sustained, as well as in the actual profit margin.

When performing a valuation a professional appraiser will use more than one valuation method. By using several methods the Consultant is able to "box-in" the value with a high degree of confidence. The most common methods Oak & Associates uses include the Capitalization of Earnings method, Price/Earnings Multiple method and Discounted Future Earnings method. Each of these methods rely on the determination of the sustainable earning capacity (pro forma profit) of the agency.

What You Will Receive from Oak & Associates
Oak & Associates will conduct on on-site interview with the agency owner(s) and accounting person to clarify questions in the questionnaire, measure risk and to determine the sustainable earnings capacity of the firm through a line-by-line financial analysis. The agency visit also allows for consulting on any issues of concern you may have, such as productivity, compensation, procedures, etc.

After the visit, you should expect to receive the written fair market valuation report in about two or three weeks. This report will include a list of strengths and weaknesses for the agency as well as the appraised value.

What You Need to Send Oak & Associates

• Four years of financial statements (income statement and balance sheets)
• Most recent month "year-to-date" income statement and prior year same period
• Most recent month balance sheet
• Completed Consulting & Valuation Questionnaire

The completed Consulting & Valuation Questionnaire and financial statements would need to be received prior to the agency visit. Any management reports the firm has can be substituted for the information requested in the questionnaire. The completed Consulting Questionnaire helps us better understand the unique features of the agency or book of business, as well as the areas of risk, which affect value, such as key markets, key accounts, staffing and/or producer capabilities.

Costs
Cost will vary based on complexity of the agency and completeness of financial records. The charge for the Fair Market Valuation is calculated on an hourly basis, $250 per hour for the time of the Consultant and $100 per hour for the time of the Financial Analyst, plus expenses. The cost is in the $4,000-$6,000 range, with the exact cost based on the time spent on the project.