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Take your agency from sluggish to successful S U M M E R

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Are you under or over valuing your agency? Page 13

Competing with the Big Fish Page 10

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Summer 2015 Publisher Oak Street Funding Editorial Director Michelle Wilson Contributing Editors Michelle Wilson Stefanie Neer Graphic Designer Aidreen S. Hart

Crushing Myths About Borrowing

The Bridge is a newsletter produced by:


6 Under Review Best practices for selecting vendors

14 Are You Twignorant? Quick tips for getting started with Twitter

18 Natural-Born


Agency borrowing looks to be positive in 2015

Oak Street Funding 11350 N. Meridian Street Suite 600 Carmel, Indiana 46032 866-625-3863

Potential borrowers are responsible for their own due diligence on acquisitions. Loans and lines of credit subject to approval. California residents: Loans made pursuant to a Department of Corporations California Finance Lenders License. The materials in this paper are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. The use of this paper, including sending an email, voice mail or any other communication to Oak Street, does not create a relationship of any kind between you and Oak Street.

© 2015 by Oak Street Funding LLC. All rights reserved. Any duplication without prior written permission is strictly prohibited.

Share Your Thoughts If you have any questions, comments or ideas for The Bridge®, let us know. Email us at 2 | w w w.oakstreetfundin g . co m / s ig nu p • 8 6 6 - 6 2 5 - 3 8 6 3



Summer is a welcome sight. Although for many it’s a time to slow down a little and partake of all the pleasures warmer weather offers, activities are in full swing at Oak Street Funding and it appears it’s the same for many insurance businesses. Through May of this year, we’ve seen record demand for capital as

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insurance professionals demonstrate their readiness to grow organically, expand through acquisitions, transfer ownership to successors, and manage their businesses more efficiently. We’ve also seen the need for larger loans and have increased our maximum loan size to $20 million as a result. According to various industry reports and insight from brokers and principals, M&A volume is greater than it has been in years, with larger organizations and private equity companies accounting for nearly half of all purchases. In addition, valuations

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and multiples are increasing. With the heightened interest in acquisitions, some agencies are faced with the decision of whether to sell now or later. Whether you determine an exit is in the 1-866-OAK-FUND

near or distant future, one thing is certain for owners: you’ll want the highest possible valuation for your business. How will you work towards achieving that? One way is to maintain healthy financials and cash flow. Another is to keep your business on an upper trajectory rather than at a standstill or decline. In order to work towards both, it’s important to realize high returns on all your investments in business growth. We hope the contents of this edition will provide insight to help you make wise decisions about sales, marketing and other strategies so you can reach your goals and prepare for the future.

Oak Street Funding Vision Statement Oak Street Funding utilizes industry knowledge, well-developed technology and passion to deliver best-in-class service and capital products to insurance and finance professionals nationwide. Our customer-focused mind-set and access to capital will allow us to continue to fulfill customer needs, identify growth opportunities and provide an empowering work environment for employees.

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Growth Percentage Based on Loan Purpose Technology


for the insu

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Payoff Company Debt


Working Capital




Average growth of

ALL LOANS 24.66%

Agencies Can Grow with Responsible Debt Data as of January 31, 2015, for entire portfolio of loans. Average timeframe of 30.1 months. Individual loan results may vary and revenue growth is not guaranteed. Some loans were used for multiple purposes so percentages may reflect growth rates based on a weighted average achieved in combination with other loan purposes.

Shareholder Buyout 1.1%


% 6.8

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Other 3.2%

7.4 % Marketing 11.9% Acquisitions 14.7%

Payoff Debt 21.2% Working Capital 17.9%

Hiring 4 | w w w.oakstreetfundin g . co m / s ig nu p15.8% • 866-625-3863

How Loans Are Used Agencies often have more than one objective they’d hope to accomplish with loan proceeds. Most use funding for three or more purposes: • 1 Use: 21.9% • 2 Uses: 26.2% • 3+ Uses: 52.1% *Loans and lines of credit subject to approval. Rate may vary at any time. CA residents: Loans made pursuant to a Department of Corporations California Finance Lenders License. Potential borrowers are responsible for their own due diligence on acquisitions.


Has your agency reached a plateau? Fortunately, there are ways to reignite your business and regain momentum. Here are some remarkably simple and practical ways to get your agency moving.

Take a time-out

One of the best ways to recharge your batteries is to spend time away from the agency. While no two agency owners are exactly the same, it’s a safe bet that nearly all of them are workaholics to some degree. Time away, even short breaks, are sometimes needed to clear your head, restore your energy and look at your business in new ways.

Take a new direction

Have you ever redecorated a room in your home and felt renewed (at least once the hard work was over)? There’s a feeling of satisfaction when you make simple changes, and they often motivate people to make other changes. It may be time to renovate your business and practices. A good way to start is by taking a long look at your customers’ needs. That’s especially important if your agency has been in business for a long time, because your market may have changed. Often, communities and customers change slowly over time, and those changes happen so subtly that businesses may not notice them. If your products and services are still working, you may want to consider exploring new marketing opportunities. Perhaps direct mail or cable television will help you reach out to new prospects. Or you may want to play an active role in networking groups or community organizations such as service groups and the Chamber of Commerce. The opportunities are endless, so identify those that appeal to you and try one or two. Another way to get ideas for your agency is to look at successful businesses outside your industry. You can identify a company that impresses you and study what it has done to achieve success.

Align with partners

If you feel that your agency can’t move past certain limitations, it may be time to consider bringing your business together with others. One obvious example with that is a merger with or acquisition of

another agency in your community or a nearby town. By combining forces, you can increase your potential for revenue while taking advantage of economies to trim your operating costs (for example, paying rent for one office instead of two). Another approach that may be worth examining is combining or aligning your agency with another business that is not a competitor, but that actually provides services that are complementary with yours and promote cross selling. Examples of those businesses include financial planners, attorneys, accountants, and Realtors. You may be able to trim operating costs by sharing office space and administrative staff, and to build revenues by developing relationships with the other professionals’ clients.

Infuse new energy

Most savvy business owners are wary of “throwing money” at a problem, and even more hesitant to “throw people” at needs by adding to their companies’ staffs. However, bolstering your team by hiring the right people can give your agency a powerful shot of energy and resources. Bringing new blood into an agency tends to pay off in two ways. First, there’s the additional productivity or revenue that the new employee tends to generate. But just as important is the emotional impact that someone new can create. That person’s enthusiasm tends to be contagious, bringing renewed energy to everyone else at the agency (including you).

Make an investment

As an agency owner, one of the first considerations whenever you think about changing something is whether you can afford to do so. Even if you know an initiative would benefit your productivity and profitability, you may look at your current income statement and wonder how you can make that possible. But it’s important to shift your thinking so you view such moves as investments in the long-term value of your business, rather than as short-term expenses that hurt profitability. It’s true that making a significant change may cause you to tighten your belt for a few months, but the long-term benefits should reward you for making the change.

Another way to get ideas for your agency is to look at successful businesses outside your industry. You can identify a company that impresses you and study what they have done to achieve their success.

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Whether you operate a small, medium or large insurance business, you must rely on vendors to some degree. From accounting to marketing to technology and staffing, vendors provide products and services that are essential to operations.

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For every need your organization has, there are likely five to ten vendors that are vying for your business. Each touts how unique it is and how well it can meet your needs like no other competitor. With all of the claims and promises, partnering with vendors that can and will actually deliver can be challenging. So how do you get the products and services you need and the expected return on your investments? Diligent research is key to minimizing risk and maximizing time and money when it comes to choosing reputable vendor partners, whether large or small in scale. Here are some guidelines to help you choose the right ones.


Finding credible vendors that will take a genuine interest in the success of your business takes time and effort. Often the best way to start is by asking colleagues for their suggestions based on their contracts and relationships. Referrals speak volumes about a company’s reputation and competency. If you don’t directly have contacts that can make referrals, try posting a question to message boards or online professional groups. You can also vendors meet vendors face-to-face and get insight from others at industry events and trade show booths. Lastly, you can conduct an online search. Don’t succumb to the temptation to select the first vendor you encounter or the one who appears to offer the lowest price. The “you get what you pay for” adage offers some truth. It often pays to shop around and compare pricing before zeroing on one company. However, don’t let low price overshadow quality and service.

Do your homework

Once you have a list of potential vendors, take the time to fully research each company’s background. Call any provided references and ask detailed questions about their experiences with the company. If the vendor doesn’t provide references, don’t be shy about asking for a few. A vendor who doesn’t have any references to offer, or who hesitates about providing some, should immediately send up a red flag. The Internet is your friend when it comes to gathering data. Although it’s not good to rely solely on what you read on the web; these days, it is the most logical

If it sounds too good to be true, it probably is. Be immediately wary of vendors who offer you a deal or discount that seems unreasonably good, or who pressure you to sign a contract too quickly. and convenient starting point for finding information. Read any customer reviews you can find about the company, and certainly, touch base with resources like the Better Business Bureau and the Attorney General’s office to assure there are no outstanding claims or complaints. Pay attention to what customers are saying and posting on company web sites, Facebook pages and other companyrelated sites. A general Google search of the company’s name can also reveal valuable information; for instance, newspaper and trade journal articles about lawsuits, customer complaints or shady business dealings.

Managing expectations up front is the best way to avoid problems and miscommunications down the road. You want to be assured that you know what you’re getting for your investment without any unpleasant surprises. The last thing anyone wants is to sign on the dotted line only to find out weeks or months later that the company misrepresented itself or didn’t disclose important information, and now you’re left with a costly mess to clean up. Know from the outset what you’re getting for your investment, including payment terms, reports and feedback. Results should be measurable and quantifiable. Use clear, concise language to communicate, and expect the vendor to do the same. In today’s fast-paced electronically driven world, it’s easy to get confused by tech-savvy terms and acronyms. Read every word of the fine print, and if a contract uses language you’re not familiar with, ask for clarification or further explanation. Establish a main point of contact with the vendor. If a problem should arise, you need to know who to call and how it will be handled. After all, who wants to be shuffled through a number of different people and departments when you’re already frustrated and just want an answer?

Cover your bases

Watch out for red flags

Like the insurance industry itself, narrowing down a short list of prospective vendors is all about assessing risk. According to the Third Party/ Vendor Risk Management Survey released by MetricStream in 2014, more than 50 percent of respondents said their institutions send questionnaires to vendors for risk-management purposes. More than 75 percent require vendors to acknowledge and agree to a supplier code of conduct. If potential issues regarding goods or services can result in significant financial repercussions for your agency, request proof of insurance coverage and/ or licensing. Remove emotion from the decisionmaking process. No matter how nice the rep seems, handshake deals are shaky at best, and won’t hold up in court if it comes to that. Be clear about what you’re agreeing to and what the vendor will provide, and most importantly, get it in writing.

If it sounds too good to be true, it probably is. Be immediately wary of vendors who offer you a deal or discount that seems unreasonably good, or who pressure you to sign a contract more quickly than you’re comfortable with. Pay attention to the way the company communicates with you. Are emails answered and phone calls returned promptly? If not, why not? If it’s feasible, pay a visit to the company’s showroom or office to see first-hand how it operates. Transparency is important. If a vendor behaves as if they have something to hide, they probably do. Lastly, and perhaps most importantly, go with your gut instinct. If something seems fishy, off or just doesn’t feel right — even if you can’t specifically put your finger on what it is — leave the deal alone and find someone else to work with. It’s always better to be safe than sorry, and it’s not worth taking a chance to learn a lesson the hard way.

:industry news

Affix a Fitbit and get insurance discounts Tracking activity for auto insurance discounts started with devices that record your driving and send data to insurance companies like Progressive® and State Farm® — drive safely and get reduced rates. Now it’s expanded to people. John Hancock® is now offering discounts to insureds who use Fitbit® wristbands that track exercise. Policyholders may get as much as 15 percent off prices for life insurance policies. Vitality, a company that integrates wellness benefits and life insurance, is partnering with John Hancock to provide the program. 

Auto insurance shopping remains unchanged Despite moves by carriers to push online shopping for auto insurance, shopping rates have changed very little in the last three years. The TransUnion Auto Insurance Index researches the shopping transactions of more than 450 million consumers since 2009. While there was an increase in shopping from 2009 to 2012, the number of shoppers has only fluctuated by one-tenth of a percent from 2012 to 2014. In addition to shopping rates, the index also reveals regional differences in shopping trends and provides information on how insurance shopping segmentation can help predict who will shop for auto insurance in the future. 

Are financial advisors taking over producer business? In addition to Google®, direct writers and other competitive channels that have vexed traditional insurance agents over the past few years, now there’s a new player entering the producer territory. CNBC reports that financial advisors are starting to review clients’ insurance coverage and provide advice. As financial advisors start to fulfill the role of agent, the role of the producer could see some changes.  8 | w w w.oakstreetfundin g . co m / s ig nu p • 8 6 6 - 6 2 5 - 3 8 6 3

Agency and brokerage buyers paying highest value ever

Perpetuation planning need lingers Insurance agents preach the importance of planning for the future and for the unexpected. It may be surprising, then, that a survey conducted by the Academy of Producer Insurance Studies revealed 40 percent of agency principals still don’t have a written perpetuation plan in place to prepare for unexpected events or the future of their businesses. As a result, insurance companies need to help agents develop strong perpetuation plans to help protect their market share. While many companies and associations recognize the agents’ need for planning, not many have taken action to help. 

Is technology killing agent loyalty? While technology certainly creates greater competition for insurance agents, it’s not a killer of the agency distribution channel. A few months ago, when Google Compare went live in the United States (after a successful start in the United Kingdom), the industry wondered what type of impact it would have on online quoting. According to an Insurance Journal article, millions of people have requested quotes using Google® since it became available in California in March. More than half of those report receiving quotes that were more competitive than their current rates.  ®

According to data shared by Reagan Consulting, agents and brokers are seeing the best growth rates and profits in almost ten years. As a result, valuations are at all-time high. In fact, some multiple deals have increased 10 percent in the last 18 months. Reagan reported that profitability, organic growth and sales velocity were among the top factors that affect valuations. What’s more, the industry is abuzz with a flurry of merger and acquisition activity. These current market conditions are positive for principals who may sell in the near future. Private equity companies made up 43 percent of all buyers in 2014, but data shows high demand from all types of buyers. 

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Big Fish

The entrance of a new competitor or rebirth of an existing one can have an enormous impact on an industry in a very short time period. They can have even greater impact on established businesses when their presence or new tactics are completely unexpected.

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Disruptive competition. Think about how heavily many big-name companies were hit by competition. MySpace was the first social media site to entice teens and young adults, but Facebook and Twitter prevail today amongst all age groups. With warm bookstores offering comfy chairs and gourmet coffee, Borders was the popular source for books —until Amazon offered a new alternative. Formerly the phone of choice for accessing email on-the-go, Blackberry was blindsided by Apple’s iPhone . And Kmart , which was a household brand in the 1970s and 1980s was pushed aside by the likes of Walmart and Target . Big budgets. Once the leaders of their industries, these companies dramatically declined because of intense, disruptive competition. Before fading into the background, however, they fought financial battles to maintain their positions. The changes occurring in insurance are just as notable. Of all the industries that spend billions each year on advertising, the insurance industry consistently ranks among the top three. To help ensure returns on their advertising investments, insurance companies develop big budgets so their marketing strategies, sales forces, online tools, customer service systems, and other functions can adequately manage the resulting business. What’s more, the introduction of direct-to-consumer selling through online channels promoted via every type of media available has certainly changed insurance as we knew it even five years ago. In addition, private equity backed roll-ups and agency clusters that can share resources and benefit from increased size and economies of scale are quickly growing. A delicate balance. Independent agents face great challenges if they want to remain independent. More so now than ever before, companies with deep pockets make it difficult to capture and maintain valuable customers. To respond appropriately, you have to achieve a delicate balance between sustaining your business according to your vision and long term plans and taking action to counteract market changes. It’s a tricky disposition in which to be because it’s not wise to allow competitive moves to be the primary influences of your strategies, but they present real threats that can’t be ignored. So how do independent insurance agencies face competitors without blowing their budgets, especially those with enormous resources? It’s important to discover ways to effectively fight your battles without financially damaging or crippling your business. Here are some considerations to make as you develop strategies to manage competition while managing your cash flow. ®










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Don't be lured by the same bait

It’s unrealistic to believe you can copy your competitors’ tactics, and you don’t need to. While independent agencies are in a serious fight, view your challenges as smaller battles. If you try to go head-to-head with big competitors and their big resources, you’re likely to lose. Insurance ads, for example are developed with great creativity and fanfare than they were a decade ago. They’ve even become part of pop culture. What’s more, carriers have succeeded so much with imaginative, expensive ads, more companies are following the same pattern by developing their own brand of humorous ads with fictional company spokespersons and animal characters. This creativity and spending extends to websites, billboards, magazines, email and direct mail. It’s impossible for independent insurance agents to engage in advertising battles to these magnitudes. Agents, however, shouldn’t throw in the towel and assume that all is lost. In general, all insurance advertising can be used to the advantage of agents who are doing the right things. Many insurance ads today —especially property and casualty ads — prompt consumers to think about insurance when they otherwise might not consider it. When insurance agents stay in front of their clients, the agents can find themselves on the receiving end when these same consumers are moved to review their policies. Independent agents can offer a strong differentiator – deep, personal relationships and customized service. So while the commercials are designed to help the advertising carrier, agents who have built and maintained strong relationships can also benefit. If they are viewed as a trusted resource for insurance information, they may be top-of-mind for people as they have questions or doubts about adequate insurance coverage. Instead of draining your budget to do local advertising, simply keeping in touch with your customers and their needs via phone, email or face-to-face appoints, can allow you to counteract the big advertising dollars in a way that’s unique to your business. In essence, you’re identifying the weaknesses of your competitors and making them your strengths.

Swim in your own lane

Properly responding to big competition means attaining a healthy balance between sustaining your business and counteracting market changes. If you want to succeed in the face of competition and today’s fast paced changes, you can’t completely stay the way you are. Yet change almost always comes at some expense. There’s usually no way to avoid spending some of your budget on measures that will bring about change and growth in your independent agency. So how much money is reasonable to dedicate to these efforts? Can you spend less money for marketing but, instead, spend more time developing relationships? Are there some kinds of investments that might be better than others? 12 | w ww.oakstreetfund in g . co m / s ig nu p • 8 6 6 - 6 2 5 - 3 8 6 3

Properly responding to big competition requires a healthy balance between sustaining your business and counteracting market changes. If you want to succeed in the face of competition, you can’t stay the same. Successful businesses have proven it’s extremely difficult to impossible to keep up with the current times or to grow without investing some money. So while you can’t ignore competition and hope it will go away or have little effect on your business, you must look at what types of investment can have positive impacts on your business without draining your cash flows. Technology, for example, has proven to dramatically help improve operating efficiencies, generate leads, increase profitability and more. Competitors typically have an arsenal of technological innovations to aid their businesses. It’s difficult to successfully manage the sales and prospecting process without a good CRM system. Winning customers is a lot easier if you can provide people with access to online information and quoting. And keeping in touch with thousands of customers and prospects can be more cost effective with email broadcasting subscriptions. These are all ways in which technology is pretty standard for agencies to simply function and exist today. Thus, spending the dollars on such expenses makes sense and is necessary. When making growth investments, agents should be careful about their expectations for how much revenue strategies may generate — how they will affect cash flow. Software can cost tens of thousands of dollars while subscriptions to online services can run between a few hundred to a few thousand dollars per month. You have to know, with great detail and certainty, how technology will be used, how it will fit into an overall plan and how it will translate into a return on investment. This rule applies for all investments in the agency, especially when they’re aimed at competition. Before you decide to increase your budget and copy the tactics of big competitors or choose a conservative approach and in ‘business-as-usual’ mode, consider the impact potential changes will have on the financial health of your business.

Avoid mistakes to get maximum value M&A activity has been as busy as I’ve ever seen it. Our brokerage company and others have been involved in a record number of transactions. Not only is volume high, values paid for insurance agencies are also increasing. To get the maximum price when selling your agency, it helps to understand how to value your book of business and, in most cases, the value is not simply a multiple of commission. Most agencies are sold at a price driven by earnings, the risk associated with earnings and the availability of financing. Let’s discuss how each of these factors play into a buyer’s valuation.


Prospective buyers often value an agency on projected earnings and not commission revenue, because they expect to be able to cover debt service and earn a fair return on their investment. Historically, the average small agency sells for four to five times its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization adjusted for excess expenses associated with ownership). The adjusted or pro forma, future looking, EBITDA generally increases with the size of the agency to as high as 15 or so times for publicly-traded brokerage companies with billions in revenue. To calculate your adjusted EBITDA, start with your prior year’s corporate tax return and use this equation:

Net Income + Owner’s W2 Salary + Interest on Loans + Taxes Paid + Depreciation/Amortization + Non-recurring Expenses + Owner’s Personal Expenses – Manager’s Salary (Market Value) EBITDA (adjusted) Risk

To secure financing, a buyer will need to conduct thorough due diligence on your agency to assess the inherent risk. Expect to answer these questions on your earnings: • What products do you sell? • Is the revenue trending up, down or flat and why is it doing so? • How clean are your financial records? • What are your retention rates?

• • • • •

What are the commission rates? Are you writing with rated carriers? How relationship-dependent are your accounts? How large are your accounts? How effectively are you cross-selling?

The lower the perceived risk involved with post-sale retention, the higher the perceived value in the book of business. These risks factors can raise or lower the selling price by 30% or more.


In any small business sale, third-party financing makes a deal more attractive to both parties. With it, the owner no longer has to act as the bank, and the buyer can leverage their capital and gain an extra set of eyes in conducting due diligence. Without lenders, you may be forced to accept a lower price or hold a large note to sell your agency. Financing also opens up the sale to a larger pool of potential buyers, which is essential for competitive bidding. Typically, the more money that can be borrowed to finance an acquisition, the more likely it is that you will obtain the best price for your agency. There are only a few lenders in the marketplace that understand insurance agencies and, hence, will finance an agency sale transaction at a real market price, so it is important to work with a lender that specializes in the industry.

Selling strategy pays off

Though most agents have a business plan, many don’t have an exit strategy. Improper planning can cost you hundreds of thousands of dollars when it comes time to sell. A few years prior to executing a sale, consult with an accountant, an experienced business brokerage or merger and acquisition intermediary, and a specialized insurance lender. These parties can work with you to develop a strategy that will help to maximize your net proceeds. About the author Michael Mensch is a Certified Business Intermediary and Merger and Acquisition Master Intermediary specializing in the valuation and sale of insurance agencies nationwide. He can be reached at or (321) 255-1309.

:around the web

Are you Twignorant?

Get up to speed with Twitter® basics Who Tweets? Nearly 250 million people worldwide turn to Twitter each day for business purposes, personal use or both. What are they doing? They are interacting with a trending topic, keeping up-to-date on world events, talking about their day-to-day life, or interacting with a brand like yours. If you are considering jumping on the social media bandwagon, you are likely asking yourself, “How can Tweeting help my business?” Tweeting can help boost your business in many ways: ®

• Opens new doors for communication, education and engagement with your audience. • Begins new customer relationships and expands upon existing ones.

Personalize your profile

Next, you have to personalize your profile to reflect your brand: • Choose an image that is square for your profile photo. • Select a background image. • Don’t forget to complete your biography.

Research and Tweet

Once your profile is ready to go, it is time to do some research to determine what types of posts can help meet your objectives:

• Quickly and easily spreads promotions and special offers.

• Search for topics pertaining to your industry, find profiles of both competitors and industry partners.

• Keeps you up-to-date with industry trends.

• Take note of the mixed media they are sharing.

• Gives your brand a very important human element.

• Tailor each Tweet based upon your desired outcome.

Here are some tips to get started, and you can find specific,  step-by-step instructions by viewing our webinar on demand at

Create a username

Once you have decided to sign up, you have to choose a username before you can begin Tweeting. Your username is what others will use to contact you while using the platform (i.e. @OSFunding.) There are a few simple rules to follow when you are selecting a name: • Make sure that whatever name you choose is simple, memorable and relevant to your brand. • Avoid using numbers or underscores, as they are difficult to remember. • If your name is taken, consider abbreviating part of your name or adding a descriptive element. • Always remember, you can change your username at any time. However, once you are established, if you change your name your followers might have trouble finding you. 14 | w ww.oakstreetfund in g . co m / s ig nu p • 8 6 6 - 6 2 5 - 3 8 6 3

Understand and use hashtags

Using hashtags that are relevant to your industry is a great way to gain both followers and exposure from the right audience. What is a #hashtag? A hashtag is any word or phrase that begins with a # symbol. When this symbol is used in your message, it will put whatever word of phrase that follows into a category or topic that is searchable and more likely to be found. For example, if your message contains #insurance, anyone around the globe that searches for the word insurance on Twitter are more likely to see your post than if you don’t utilize the hashtag feature.

Tweak your Tweets

As you gain more experience with Twitter and post more frequently, continue to ask yourself questions to always ensure you’re successfully engaging with your audience: • What would inspire my followers to respond? • What kind of language should I use to sound natural? • Which keywords make the most sense to #hashtag? With these tips and instructions, it is time to get started. We hope to connect with you on Twitter! Once you do, please follow us at @OSFunding and @osfAgencyExchange.

Customized Loans

• $25,000-$20,000,000 • Terms up to 12 years • Interest-only options Loan s up

$20 m



Taking You Where Banks Won’t. ®

Where can you take your agency with extra capital? Position to sell? Acquire an agency? Enhance customer service? Tighten up operations? Expand to new markets? No matter where you’re taking your business, Oak Street can help with a customized loan that leverages your commission stream. Since 2003, thousands of agents have accessed capital to grow, acquire and succeed with an Oak Street loan or line of credit. Call us or get a quote at

Uses of Capital • • • • • •

Acquire an agency or book Consolidate business debt Get working capital Buyout ownership/Succession Invest in business growth Recapitalize

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about borrowing

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Over the last several years, businesses in all industries were in a “perfect storm” when it came to the struggle of accessing credit. Agents and brokers who needed extra capital to grow through acquisitions, hiring, refinancing agency debt to improve cash flow and meet other strategic objectives often couldn’t get funding. What’s more, aging owners who were ready to perpetuate found themselves in a quandary as chosen successors with plans to buy into ownership experienced similar, if not greater, challenges. So, now that the economy is stronger, are conditions better or worse for agents and brokers who desire funding? Myth: The economy is stronger, so traditional bank loans are easier for insurance businesses to obtain.

The economy has improved and banks are lending more to businesses in general, but the availability of credit to insurance agents and brokers has remained virtually unchanged. Most traditional banks still believe there’s too much risk in collateralizing a loan with intangible assets like future commissions. They prefer tangible assets like real property and CDs as security. As a result, banks generally haven’t changed their position and don’t prefer lending capital to agency owners without the security of personal assets. When traditional banks extend credit to insurance businesses, it often comes with a greater number of complex covenants (i.e., maintain certain net working capital, debt ratios and other financial metrics). Any lender will likely require covenants for larger loans (in excess of $1 million), but many niche lenders will not require them for smaller loan amounts. While loans can provide much needed capital to meet business goals, covenants can burden agents and brokers as they must ensure compliance with them. If those covenants are breached, the results can mean financial penalties, increased interest rates and even the bank calling in the loan. To fulfill the ongoing need that agencies have for capital, nontraditional lending sources stepped up during the credit crunch and continue to do so. While these commercial and niche lenders are just as concerned about managing risk and avoiding losses as other institutions, they are not subject to some of the same regulations as banks and credit unions. As a result, they can extend affordable credit to businesses secured by collateral that might otherwise be ineligible for traditional bank loans. Nontraditional lenders realize the most valuable asset of agents and brokers is the cash flow embedded in their book of business and they understand these assets. Like banks, nontraditional lenders offer different types of loans, including ones with variable and fixed rates. However, nontraditional lenders have more flexibility in how loans are structured and develop lending models that specifically address agent and broker needs. They are typically entrenched in the industry, deeply understand how agencies and brokerages operate, and have the expertise and actuarial models to analyze commission streams.

Myth: Successions involving successors are typically successful.

While many agencies have a solid succession plan, finding capital for the purchase can stop successors in their tracks.

Existing owners usually want a large sum of cash up front in order to have sufficient funds for retirement. Often, these industry veterans set their sights on having a family member, long-time manager or thriving producers take over what they’ve worked so hard to build. Not only does this approach allow them to see the continuation of their vision and legacy, it also helps them provide great opportunities to the people who’ve demonstrated a commitment to the business. Unfortunately, those dreams are often unrealized. It is difficult for individuals without cash or sizeable assets to get traditional bank financing. Even for those chosen professionals who are well-suited to take over a business and ensure its growth and future success, the one thing that stands between them and ownership is financing. With nontraditional lenders, however, successors have opportunities to secure financing that might not exist with banks. Because the future commissions of the agency to be purchased are used as collateral —and sometimes with more reasonable cash amounts due at loan closing —family members and other buyers can obtain commercial financing to see the succession plan come to fruition. The awareness of viable financing options has probably never been more important to the insurance industry than it is right now. As a majority of agency principals are closing in on retirement and prefer an internal succession, owners and future would-be owners need to know about succession loans, management recapitalizations and other financial products that are available to help keep the agency channel alive and strong through transfer of ownership. Even the most sophisticated and financially sound insurance businesses may be surprised if they are denied a commercial loan by a traditional bank. Despite the lending models that persist in making financing a challenge, owners should be encouraged. Whether they decide to pursue a loan with a traditional bank or a niche lender, both will look for evidence that the agency owner has the ability to pay off the loan as well as personal and business financial strength and integrity. If they choose to pursue a loan with a niche lender, the projected cash flows from renewal commissions will be key to collateralizing a loan and the amount owners can potentially borrow will depend less on personal assets and more on such factors as the anticipated volume of renewal commissions, the types of insurance products they sell, the insurance carriers’ financial strength ratings, and the owner’s FICO score. Although securing capital may still pose challenges for insurance agents and brokers looking to the future, there’s relief in knowing they can find and secure realistic debt that’s properly structured to position their business for long-term success.

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BORN salesperson?

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Are the best salespeople born with the unique abilities and characteristics required to sale or are they developed? Clearly, there are some personality traits that can make an individual more suited for sales than those who don’t possess them. Those “natural-born” qualities typically include a gregarious personality, the ability to easily connect with people and forge relationships, and a hefty dose of self-motivation. The concept of the “natural-born salesperson” leads most sales managers to seek candidates with most of the aforementioned traits, convinced they will be perfect for a sales role. It also influences people who aren’t blessed with an abundance of those traits to doubt their ability to be successful salespeople. So is the natural-born concept a myth? While having certain characteristics can be helpful, there is actually a proven science to sales. Sales is a business process that can be measured, managed, predicted, and improved. The better you understand how the selling process works, the more effective your efforts will be.

Start the process

As a producer, your goal is to convert prospects into customers. That conversion process can be simplified into the following steps: • Identify and locate a target market • Reach out to prospects • Connect with a prospect • Schedule an appointment • Conduct the sales effort • Performing follow-up activity • Complete the sale The ability to measure most of the steps and use the metrics to predict future activity makes a process a science. For example, experience may indicate we need to make 50 cold calls to land an appointment, and approximately one of every three appointments results in a sale. That means 150 cold calls are needed for each successful sale, or 1500 calls are needed to add 10 new customers. Your numbers will vary depending upon several factors, but measuring will allow you to test and change approaches to have a greater impact.

Apply the science

To turn the process of selling into a practical approach for your agency, you need to begin by developing a solid, realistic sales strategy. Sales experts Frank Pennachio and Susan Toussaint say that many insurance agencies don’t take the time to develop annual sales plans, which they believe make it “virtually impossible to successfully predict and meet revenue goals” and to provide formal accountability for those goals.1 The first step in developing such a strategy, say Pennachio and Toussaint, is to analyze your past sales performance and the methods you used so you can determine where you were successful and where your efforts fell short. Once you’ve done that, you can set your goals for the coming year. Simply guessing at numbers or using overly optimistic estimates is counterproductive, they caution. Goals should be based upon past performance, the individual’s capabilities, current market conditions, and the amount of potential customers in the agency’s new business “pipeline.” 2

The other critical element is regularly measuring your progress toward your goals. You need constant feedback to let you know how you’re doing while you still have enough time to adjust your approach, if necessary. Waiting until the end of the year to gauge your progress will only set you up for surprises and potential failure. So how much activity is appropriate? Sales trainer Kathy Yeager says the best practices for salespeople in most industries involve spending three to four hours a day with customers and prospects, and as many as eight prospecting calls per day (that’s 2,000 per year). She also recommends that salespeople set aside two hours per week for what she calls “creative thinking.” You can use that time to consider new ways to find prospects or develop new sales approaches.3

Be persistent

Persistence is critical to a successful sales process, but the average salesperson stops trying after two attempts.4 It can be tough to keep trying after you’ve been turned down again and again. But what makes the difference between average salespeople and top performers is a willingness to persist in the face of rejection (or after repeated arrivals at prospects’ voice mail messages). As consumers become ever more saturated by media messages from more sources, persistence becomes even more important. For example, back in 2007, it typically took 3.68 attempts to reach a prospect when cold calling. Today, you may need to try eight times to catch someone. The same holds true for following up after an appointment. It’s been reported that 80 percent of sales involve five follow-up calls, but nearly half of all salespeople give up after following up just once.4

Use time wisely

Ben Franklin warned early Americans that “time lost is never found again.” Successful entrepreneur Michael Altshuler echoed that with a positive note when he said, “The bad news is time flies. The good news is you’re the pilot.” 5 In other words, although you may not be able to control the pace of time, you’re in complete control of how you use this limited resource. Because it’s impossible to create more time, managing what you already have effectively is a critical component of sales. It doesn’t happen automatically. You need to be aware of your objectives, and plan the activities into your schedule. Finally, do your best to avoid activities that seem to be work, but are really unproductive time from a sales standpoint. Sales executive Earl Stevens cites a long list of business activities that are unproductive, from socializing with co-workers, to daydreaming, to trying to do too many things on your own (instead of delegating them to support staff or outside vendors). He also emphasizes that failing to address top-priority tasks first, jumping from task to task instead of concentrating your efforts on one, having a lack of clear objectives and priorities, and spending too much time putting out fires waste a significant amount of your precious time. 6 1, 2 Pennachio, F. (2013, February 20). Strategic Sales Planning: 5 Steps to Success. Retrieved December 2013, from Oceanus Partners Website: 3 Yeager, Kathy (Contract Training Edge), “Time Management Best Practices for Sales People” presentation. 4 Quoted in Atwood, Jake, “20 Shocking Sales Stats That Will Change How You Sell.” 5 6 Stevens, Earl, “Sales Training Time Management” presentation, August 2011.

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The Bridge: Summer 2015  

Insurance Industry Knowledge from Oak Street Funding.

The Bridge: Summer 2015  

Insurance Industry Knowledge from Oak Street Funding.