Forgotten Wealth

We've all done it at least once. Deep in thought you instinctively grab a calculator from your desk and hastily figure the value of your agency to see what you could get for it on the open market. Come on, be honest...you've done it. Hell I've done it weekly depending on how the month is going. There's nothing wrong with it either, eventually selling the business is a big part of why we all bought into this deal we call an EA Contract.

But I wonder how often we consider what happens to an agency over a long period of time. Too often we think with a "Here and Now" mentality. Let's face it, we're in America...the instant gratification country. However, if the agency were held for say a period of 19-years, and grew by an average of 5% per year, the numbers get pretty sizable toward the end of that period.

Now, if you never tried to grow your agency at all in that period, and merely factored in the rate increases over that time, you'd probably come close to growing by an average of 3%, assuming higher than average retention, but for illustration purposes and to keep the math simple, I'm sticking with a 5% average over a 19-year period.

For this example, let's assume we own a $500,000 book of business valued at $125,000 (0.25 x 500,000)in year one. That same busines will be worth $131,250 the next year, a difference of $6,250 or roughly $520 a month. Continue out to the 19th year, and your $125,000 investment will be worth $315,868. Not bad, not great, but not bad either. Add to it over 1.6M in 1099 income over that period and you've got nearly $2,000,000 gross, or a $105,000 annual average for 19-years on a $125,000 investment. Where else can you do that?

$500,000 Agency with 5% Growth Over 19-Years

Year Yearly
1 $525,000.00
2 $551,250.00
3 $578,812.50
4 $607,753.13
5 $638,140.78
6 $670,047.82
7 $703,550.21
8 $738,727.72
9 $775,664.11
10 $814,447.31
11 $855,169.68
12 $897,928.16
13 $942,824.57
14 $989,965.80
15 $1,039,464.09
16 $1,091,437.29
17 $1,146,009.16
18 $1,203,309.62
19 $1,263,475.10

The point here isn't how much it's worth, but that we tend to forget about the equity our agency builds on a monthly basis. This would come in really handy, say for determing a price when you do sell...(don't have a set price based on the date of the contract, consider the time it will take to get the deal closed. Three months later could be a few thousand in your pocket).

It's also reassuring to know that your agency is more than just a 1099 income stream, it's should be building revenue in the form of equity as long as you own it.