November 1, 2022 by CIBC
Things have quickly changed! Within the span of a few months, geo-political and macro-economic factors have tilted the world on its axis. Slower supply chains and labour shortages emerging from COVID have contributed to an inflationary cycle in Canada that was supposed to be a temporary phenomenon. Then came the Russian invasion of Ukraine; which created the necessary conditions to amplify inflationary pressures across the global economy. In our country, the Bank of Canada responded by initiating a cycle of interest rate increases as inflation was no longer deemed as “transitory” and a prolonged period of increasing interest rates is likely here to stay. Consumers are feeling the pinch as their buying power erodes. Top line commission income growth and brokerage profitability face potential negative impact for the first time in many years.
All of these factors create a dilemma for the brokerage owner. How can I continue to rely on my existing succession plan to maximize my brokerage’s value and efficiently execute on a sale? The key is “adaptability”! When considering the concept of “adaptability”¹ and the forces that could impact your succession plan in the near term, you need to ask yourself the following questions:
Your insurance brokerage took years to build and has endured and thrived through multiple economic cycles. Therefore, any succession plan you create as a brokerage owner cannot exist in a vacuum. It cannot remain static! It must be adaptable and address both upside and downside risks to your brokerage’s valuation. While the likelihood of significant compression in brokerage valuations remains small, re-visiting your succession plan is a prudent step to take in the current market.
¹Key Points on Adaptability taken from “Has the Insurance Brokerage Market Peaked?” Rackes and Forgione, Houlihan Lokey, 2022