Buyer beware: agencies warned about growing too fast

Excellence is more important than size, lender says

Buyer beware: agencies warned about growing too fast

Insurance News

By Will Koblensky

Everyone wants success.

Many may view success as being the biggest while others may view it as being the best. Both, of course, would be optimal.

However, when it comes to growing your insurance agency, one is the route to the other according to Robert Pettinicchi, executive vice president and chief lending officer of Insurbanc.

“One of the best ways to expand is to focus on what builds value in your agency,” Pettinicchi said.

“Things that do that are having a strong, organic sales culture, bringing in the talent, and running a business well. While it’s nice to expand, it’s better to be excellent than big.”

When asked what the biggest mistake is that Pettinicchi sees agencies make when they come to Insurbanc looking for a loan, his answer is they neglect a core aspect of their operation.

“It’s forgetting they have a balance sheet too, not just an income statement,” Pettinicchi said.

“Very often, agency principals are, by nature, sales people. They think like sales people and they look at their business mostly from an income statement perspective. You need to have some capital in your business to be able to acquire others.”

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Agencies come to Insurbanc for more than just acquisition loans, however.

Bringing in new producers, buying office space and underwriting new policies all require loans for most companies who aren’t sitting on piles of stagnant cash.

“If you’re looking to bring in new producers, develop producers, you have a period of time that it takes for them to become productive producers. That creates a working capital requirement because you’re going to be paying them while they’re not really bringing in anything,” Pettinicchi said, adding that Insurbanc usually provides lines of credit that converts to repayment when the producers start producing income.

“Borrowing money to acquire an agency, or a book of business, those things are usually immediately profitable, because the income comes directly from those,” he added. “They’re analyzed a little differently.”

Overall, it’s how you treat your business that will ultimately determine its value, Pettinicchi advised.

Running your business properly means “you have an agency that’s making money prior to profit sharing,” he explained.

It means “you’re running your operation in a sound fiduciary manner, that your reporting is accurate, and that you’re not treating your business like a piggy bank.”

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