u/firenance

As I'm saying this out loud and typing it, I know it's a personnel question rather than consulting one. BUT, typing out to gauge maybe other's experiences. In what ways are generational differences presenting themselves with modern tools?

Small boutique niche firm. We've steadily moved up market to compete with multiple larger firms in our space. We are still nimble and move on things quickly compared to some peers.

Within some parameters, we've given one of our younger senior analysts practically open road on a few AI tools for data cataloguing and analysis.

Frankly, what they've built is immensely impressive, never had access to this kind of data before, and will completely change our deliverables and market value.

Problem is surfaced however, is their reliance and overfitting on the analysis. The competing sentiments are "The data says X" and we are having to say consistently data is great, but just because an AI ingested 5+ years of information doesn't mean it knows everything.

Their tendency is the desire to put anything quantifiable into a report, and we are saying that TMI can be harmful and it's up the the advisor on how information is presented.

The sad part . . . multiple people internally have expressed that so much time spent chatting with Claude is having an impact on their critical thinking skills, and while super productive, it's coming at a cost of over confidence or extreme scrutiny of AI output. Weird times folks.

Have seen this question maybe a few ways, but just had a sobering instance.

Prospects using claude, chatgpt, or google AI summaries to ask for a valuation of their company.

As a niche firm, I’d say we have been the go to source for people knowing their market value. We even have solid SEO ranking and recently focused on AEO, which is working. BUT I’d almost say too good.

A prospect shared with me their AI google chat, the questions, and how it cited our articles to give them a range of expectations based on buyer type. It also summarized the common traps which could make those estimations more or less accurate.

Basically it hijacked our first sales call. Of course I had a few more discussion points about common deal structures, planning net proceeds, but like 80% of the usual first call we have with someone to discuss “Do those numbers make sense for you?” Was answered from google with relative closeness.

Thinking ahead but we already say our biggest competition is clients moving forward without us, and our experience says if they know what numbers to push for and a direct buyer is close they will try to DIY selling direct. We harp that people often get a better outcome working with us through the competitive process, but they don’t know what they don’t know.

Anyone else have similar experiences already? We already see several PRs of former valuations and opps selling without us. My guess is that’s about to increase.

WWYD? I feel like the whole situation is going to be difficult and harm either my marriage or friendship. Prob more relationship question but related to our kid’s sacraments.

Next baby is due in a few months.

Wife suggested a couple friend to be godparents. At first I said let’s keep thinking about it. I suggested another couple, who are good candidates, but I’m confident my wife will insist on the others.

I know things about them, in confidence that my wife doesn’t know, that I would not choose them.

They do attend mass, appearances, etc. that they would be candidates but they aren’t, and my friend trusts me not to tell my wife.

(Before anyone asks, I’m not divulging the reasons, but they are enough that I wouldn’t choose them as godparents).

I feel like my primary option is tell my friend and ask him to decline if my wife mentions it to them. But I’m not sure how he will take that. We have talked about the reasons, but it was never in this context and I know he would be hurt if I said he can’t be a godparent to my kid.

Not worried about his feelings, but this could have ripple effects in our friend circle.

Edit: everyone suggesting I tell my wife. I don’t trust her to maintain their confidence. She has a history of gossip via “asking for advice” and will tell other people. I guess that answers it in that if she pushes for them as godparents I will have to risk their friendship.

Edit 2: also reminded why I don’t post here often. Some of you need to read comments and self reflect before commenting. Redundantly saying what others have commented isn’t helpful.

Idk why but just want to say this out loud. Ball demo videos for bowling are boring, but it’s the most impactful way of marketing.

Strike after strike during a match is exciting because at any point it’s waiting to see if someone makes a mistake and there are consequences.

But demo videos? Continual just showing strikes without stakes? UNLESS they are demonstrating in the same video different patterns, releases, versatility of the ball, etc. imo they are all the same.

Life is overwhelming but it’s understood it’s a season. My oldest is big enough to start noticing me and my spouse always tired. I could rant about the dynamics but my main question is when you are struggling to keep up how do you stay engaged with your kids?

I’m starting to understand where people are coming from saying their mom was always tired, their dad always worked, yada yada.

Looking back I now recognize my parents masked a lot of their stress from us, but my dad also died relatively young from a stressful life.

Here is a no frills, no holds barred, run down on what to expect when considering to sell your agency. This is a longer bulleted guide, but happy to continue any specific conversation in the comments.

1. Always talk revenue because size matters.

Premium is vanity. Financials are about revenue and margin.

Why is this?

• < $400K revenue agencies will 90% of the time be a book purchase.
• &gt; $500K revenue can merge well with other local agencies.
• &gt;$1M+ revenue gets the attention of PE or strategic buyers.
• &gt;$1M+ EBITDA is a target for PE buyers and where real competition begins.

2. Size also matters for agency valuation, and likely buyers.

In general smaller agencies have more volatile margins while larger agencies tend to have more predictable performance. Agency valuation is no more than math and comparable data (key word is comparable) to determine what a willing and capable buyer would likely pay in a market process.

• < $400K revenue agencies is the tipping point where owner salary, "owner perks," and margin performance is a gray area. It's often worth more as retirement/lifestyle income to the owner vs selling, unless they have other assets or retirement savings.
  • Special note: Most reputable M&A firms don't work with agencies in this category because it's harder to sell a small agency than a larger one, and the fees are usually more than a seller will want to pay. Some will if they know there are qualified buyers in the area.
• &gt; $500K revenue is the tipping point where an owner/manager can sell, still get a $100K income as a key producer, and get a decent buyout.
• &gt;$1M+ revenue is point #2 at scale.
• &gt;$1M+ EBITDA is means you are in the top 15% of agencies and you can demonstrate successfully running a business. At this point it's about money and talent.

EBITDA Multiples are Relative to Size, Growth, and what a buyer can afford.

https://preview.redd.it/ppbbax4k9a6h1.png?width=1024&format=png&auto=webp&s=cfa2d28119397cbb2ef1f3e2a097cc04e8afb524

​2.2 EBITDA is not the same as Seller Discretionary Earnings (SDE)

• EBITDA = Earnings before Interest, Taxes, Depreciation, Amortization.
• Agencies are not valued using Seller Discretionary Earnings (SDE).
• Any bank cash flow underwriting and certified valuation report will include a normalized owner/operator compensation.
• Taking out the owner's salary/comp is not accepted by savvy buyers, as there exists a need for admin or management oversight in an operation.
• For context, the SBA requires a fair market compensation for a manager to be considered as a reasonable factor in a certified valuation required for SBA lending.
• A pro forma, normalized EBITDA, is about measuring the reasonable operating profit of the agency as a going concern. Which means no major disruption to the operations.
  • If the owner/manager "isn't needed" then the risk is higher and multiples are lower.
  • If an owner is absentee, that often means there are competent and successful management to run day to day operations. This is different than the above point.

3. Don't bring a knife to a gun fight. Hire experts.

Too many people try to DIY selling their agency thinking they can handle it or to save money on transaction costs. I normally answer the objection by asking "As an independent agent you tell insureds it's better to work with an independent broker who knows the market and options vs quoting with a captive carrier. Selling your agency is no different. Negotiating directly with one option, without expert support, instead of a competitive process, puts you at a huge disadvantage."

• If your pet is sick you go to a vet.
• If your pipes are backed up you call a plumber.
• If you run a business you hire a CPA for taxes.
• If you get in legal trouble you hire an attorney.
• You tell insureds to hire an independent broker to handle their policies.
• But for some god-forsaken reason people are allergic to hiring M&A advisors thinking that paying a commission costs you money.

Here is a reality for most people negotiating with direct PE buyers:

• They (buyer) have an M&A lead, a team of financial analysts, and a team of attorneys who specialize in M&A.
• You? To save money you hire a local attorney who doesn't do M&A for the cheaper hourly rate, and only tell your CPA when a transaction is close to being done because you know you'll owe a lot of taxes.

What can dramatically change your outcome?

• Be prepared with accurate info, clean financials, and agency data.
• Work with an M&A advisor to learn your options and have a comparable team (negotiating, financially preparing/presenting data, legal, etc.) fighting for your goals.
• Involve your CPA and financial advisor early to PLAN for major cash and tax events instead of being reactive.

It's no secret that direct buyers (and unsavvy buyers) will start low and negotiate if you push back. Working with professionals they know you are talking with other buyers and will "sharpen their pencil" at the start. No different than you telling a commercial underwriter to put their best offer first.

Data shows represented deals in a competitive process often yield 25-30% more than direct buyer offers. Depending on the size, this is easily a 5-10x return on the success fee at close, and often covers majority if not all tax differences.

4. Transaction type matters, state matters, plan for net proceeds.

• %+ of agency transactions are asset purchases.
• Asset purchases are in large categorized with long term capital gains when structured properly.
• The rare occasion of a stock purchase is usually when a seller is a C-corporation and the buyer is open to it.
• Be sure to understand your state income tax and other cap gains tax considerations.
  • States like NY, NJ, CA, etc. with high state income tax rates can be BRUTAL for sellers . . . even with the bulk of the sale allocated to capital gains treatment.
  • Also where size matters, as once you factor in taxes owed, any transaction costs (legal, CPA, advisors, etc.).
• Have a target number in mind, net of transaction costs and taxes. Work with professionals to see where your agency fits in the current market environment, likely buyers, and expected net proceeds.

https://preview.redd.it/5ukxl40q9a6h1.png?width=576&format=png&auto=webp&s=9cf7c79ace55d71502f209b826ec4a67bfa188f4

​5. The process takes time, and only works well when you are prepared.

Deal timelines typically fall in these ranges:

• Prepared sellers and savvy buyers can go from intro, offer, negotiation, due diligence, and legal to closing within 90-120 days.
  • Well oiled machines and super prepared can be quicker, but don't bank on it.
• Not being prepared, or hiring advisors who aren't experienced with agency M&A can drag out timelines and often take 120-180 days.
• Just testing the waters, not having data, can more often than not drag out a process to more than 6 months which often leads to burnout for both parties, and lack of confidence in being able to close a deal. Many buyers walk away if you are working on info or data for a long time and not ready to sit at the table.

6. Deal terms are critical, read the fine print, and ask every question you need.

• Non-competes are enforceable for sellers/shareholders of companies. Don't go into a deal with the mindset that you are looking for loopholes. Reasonably participate and expect you will need to follow rules.
• Understand cash/guaranteed proceeds and any equity issued at close. Buyers love to push equity as it reduces cash outlay, and it's delayed payments often with special rules. If you take equity in any deal ask for copies of prospectus, internal valuations, examples/evidence of internal transactions, or the mechanisms to which you can sell those shares.
  • It also ties to your earnout and non-compete, as leaving early could forfeit shares.
• Understand the earnout terms. Most buyers will place earnout qualifications with stretch goals that may not be reasonably reached by sellers. Know your own history, performance, capabilities, and what you can achieve. A good M&A advisor can help you also understand those terms and potential expected performance marks.

Edit: I tried updating the images and for some reason it blitzed the original post and I had to retype a few things.

I work in consulting, and very focused industry niche. I joined an association a few years ago that was for consultants. For the first time I attended the annual convention and feel so seen.

It’s amazing to be in a room of 20+ people discussing technicalities about what we do, and for the first time in a long time I had a host of people I could sit and ask intellectual questions about my career.

Better than drugs.

My advice to younger ones who are still learning life, don’t shy away from finding social situations that could be valuable for you. It’s easy to close in on yourself and seek self learning, but there’s something to be said about sitting at a table with someone who has been in your shoes and can teach you lessons.