1. Keep the insurance agency on budget and performing well.
Ensuring that the insurance agency remains on track is critical during the buyer’s due diligence. Although it may take a great deal of focus to close the deal, keeping the business running according to plan is necessary for the transaction. This is the most important, of many things, to balance during the closing process. The buyer will be keeping a close eye on current financials and comparing them not only to historical, but projected financials as well. To a buyer, there is nothing more comforting than seeing the current financials exceed expectations and nothing they fear more than when they see financials get off track.
Most deals require the seller to operate the insurance agency as usual during the closing process. This should be obvious and intuitive to all involved. However, I have seen sellers try to be clever and change some aspect of the agency during the last months or weeks to try and tweak the deal to be more favorable to them. This never works. First, it is counter to the spirit of the deal to keep operating the agency as normal, and it’s very difficult to change any reasonable size organization from their normal operations without creating problems, both intended and unintended. Furthermore, it is in the seller’s interest to keep the agency operating normally just in case the transaction does not close. It is a fact of life that not all deals close after an offer is signed and accepted. The seller needs to be aware of this and not make any adjustments that they would not make if they were not selling the agency. In particular, do not change a strategy to fit the buyer until after closing
2. If something bad happens, inform the buyer immediately.
Business results are rarely perfect and on budget. If something happens, the best policy is to be up-front and inform the buyer immediately, just as you would want to be informed if your roles were reversed. If done well, this can increase the buyer’s confidence in the seller and the business. If done poorly, it can torpedo the transaction in a heart beat.
3. Have scrubbed and analyzed your previously presented financial statements.
Most serious buyers will perform a “Quality of Earnings” accounting due diligence on your company. This means that they will review, in detail, the financial statements that you have previously presented to make sure the earnings presented are high quality. It is inevitable that they will find various adjustments that make the earnings a bit better and a bit worse than expected — that is normal. However, it will save sellers a ton of time if they have performed their own analysis to find the unusual items or the items that the buyer may ask about. It is much more efficient to be prepared up-front than to scramble around trying to understand the questions yourself and to explain what the buyer may be finding.
4. Be organized.
The buyer will need all sorts of information about the financial results, legal, carriers, staff, major clients, etc. Of course, the seller wants the information to be strong and supportive of the picture that was painted during the sale process. Almost equally as important is how the information is organized and presented. Buyers appreciate indications that the company is well managed and organized — such indications provide more confidence to the buyer.
5. Communicate well with everyone involved.
Special effort needs to be made to communicate (probably more than you think) among all the parties. And, special effort should be made to think about the best methods to communicate everything. Never take a shortcut by firing off an email when a phone call would be better. Everyone is on edge, and making sure to communicate enough — and via the best method possible — pays off big time.