According to Wikipedia, EBITDA is a company’s earnings before interest, taxes, depreciation and amortization. This information is used to determine the profitability a company’s operations. So how can this indicator make or break the sale of an insurance agency?
If your agency is profitable, diversified, managed at an optimal level, you shouldn’t have anything to worry about. But, because these metrics are used to a compare company’s performance, you might want to take a close look at how your business stacks up.
Be aware of your agency’s EBITDA. You can determine yours by calculating some numbers from your income statement. Simply subtract your expenses (do not include interest, taxes, depreciation or amortization) from your revenue. Knowing your EBITDA years before you plan to sell, can give you a basic idea of what your agency is worth so you can plan for increasing its value.
Keep in mind that buyers most likely will not want to see just last year’s EBITDA figures. They will be looking for prior years to get a basic idea of how the agency has been operated and how profitable it is. There are other factors that will go into determining the value of your agency as well as other metrics. Many sales are based on the multiples of top line revenue adjusted for non-recurring bonuses, excess loss ratios and low retention numbers. All of these factors go in to the determination of agency value.