Cash Out vs. Cash Flow: What is Your Retirement Plan?

Selling your agency might sound like the ultimate success, but is it the best path for your financial future? Shane and Tonya discuss the options of cashing out or creating long-term, sustainable revenue. They explore what buyers are really looking for, how to structure your agency like an annuity, the emotional side of selling, and the hidden risks of “staying on” after the sale.  

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Transcript

Announcer: [00:00:00] This is IA Forward your Playbook for Success as an independent insurance agent. Here to help you knock it outta the ballpark are your host, Shane Tatum and Tonya Lied.  

Tonya: Welcome to IA Forward. Shane, on one of our recent podcasts, you mentioned the idea of setting your agency up to sell it versus creating. 

Perpetual retirement revenue and your comment was that needs to be a follow up podcast. So guess what?  

Shane: We're doing a follow up podcast.  

Tonya: We are doing a follow up podcast because you're the boss and I try to fulfill the things that you say.  

Shane: This is a really good topic. This may fall into the category of. 

Shame opinions that don't get a lot of legs in the marketplace, but I feel pretty strongly about it. I see a lot of agency owners get focused on the exit. They get overwhelmed with the exit. They create stress in their life, and [00:01:00] this creates a lot of stress. The thing that concerns me is when they become fixated on it, when it's your baby, something you've. 

Put a lot of sweat equity in. Most of the time you think it's worth more than it's worth. To someone else, and I don't think that's unique to the independent agency space. That's small business, mid-size business in general. When you've created something from the ground up and you put a lot of energy into it and a lot of time into it, sometimes it's 30 plus years, sometimes it's multi-generation and it's fallen into your lap as. 

The one that has to deal with the reality of there's no one coming behind you or something of that nature. A lot of third generations end up in this spot. There's an alternative. I don't think you have to create stress in a size category. Maybe this applies to the 80 to 85% that are under 5 million in premium. 

Let round [00:02:00] it up and say less than a million in revenue. This is probably more catered to you, but there's an alternative. Set it up to generate residual cash and income through retirement. Somewhat like an annuity. One of the questions when you're thinking about exiting is, should you exit at all? Should you do anything different? 

Obviously, you have to do something different if you want to retire. But what should that look like?  

Tonya: Is it like winning the lottery and you're trying to decide if you wanna get paid once, or you wanna get paid every month for the rest of your life?  

Shane: Yeah, I don't think that's off base. Winning the lottery is a little more rare, maybe a little more. 

Realistic, but in similar concept. For instance, in the state of Texas, the teacher retirement system known as TRS, you can actually take a lump sum versus your pension. You can take your pension in a lump sum versus the residual amount. It's discounted. In that case, you're basically saying, I want control over my money versus the money being paid [00:03:00] out. 

The problem I see with the upfront lottery winnings and the upfront TRS payment versus the payout is I think the majority of people don't know how to manage money at a significant level. I'm probably gonna be one of one of those situations where if you've made way better than average 150 to $250,000 a year on average inflation adjusted over the years, then you're making a really good living and all of a sudden you have $2 million. 

I don't mean you saved $2 million, you now have $2 million that you have to invest or turn over to somebody. A lot of people do dumb things. When they have that type of money for the first time or that type of money thrown into their labs, they're smarter than that we're salespeople. Don't forget that we're trying to become business owners, but we're mostly salespeople. 

Who find ourselves operating a sales oriented [00:04:00] business. So I would argue and push back and say, not everybody, especially in this million dollar or less total revenue, and then having this money dumped in your lap and having to use that money, build that money, reinvest that money, because most of us. This is a significant part of our retirement. 

Maybe we saved some money, put it in IRA, did some things, and we're now gonna hit that age. And whether it's retiring early at 55, late mid to late fifties, or whether it's 60, 65, the thing that really freaks people out about retirement is running outta money and you're tasked with protecting it and making sure that doesn't happen. 

Not a retirement expert. Not a tax expert. Lots of people that do this, but. That's what I see. We have all these statistics about people that win the lottery and go bankrupt in five years. This is where I'm coming from. Unless you are selling your business, you've built your business to a [00:05:00] size that you potentially would sell full generational changing wealth. 

I don't know what that is in your area, but let's call it 10 plus million. Your business is large enough that you're gonna sell your business. For enough money that after tax, after capital gains, all the things that get contributed there, any debt owed is paid. The money you have sitting in your account is not only gonna create this incredible standard of living for you on the returns along in a safe way, but you really aren't gonna spend any of that money. 

So it's going to pass to the next generation and become multi-generational wealth. Remember. If we're talking about the dividing line at a million, a million and below, or a million and above, this is really folks that are in that probably eight to 10 million in revenue range. So that's getting down to way less than 10% of the independent agencies across the country.[00:06:00]  

So it's a very small number that actually are gonna fit into this. Sell your business for generational wealth level. I back up and say, what about the rest of us? The 90%? What can we do? Should we sell our business for whatever, let's call it two and a half times revenue, and for easy math, we'll just stick with a million. 

So I sell my business for two and a half million. I pay capital gains on whatever the basis of that is, and I'm left with $2 million. Everything and your standard of living on whatever you've been making off of that business. And what your income needs look like through retirement. That's not like multi-generational wealth. 

That's not like life-changing generational wealth. Is there something that you should consider as an alternative to actually keep your business through retirement a little longer into retirement, et cetera?  

Tonya: Let's talk about why people wanna sell their agencies. [00:07:00] Is it about market timing? Is it about burnout? 

Is it about their goals have changed, or this idea that I'm going to retire and life is going to be perfect and I'm going to travel and then. Two years later, you're so incredibly bored that you don't know what to do. Why do people wanna sell?  

Shane: It's the idea of retirement in a lot of cases. That's the caution that I would throw out there. 

Driven. People who build businesses, particularly sales oriented businesses, get bored. Really easy. I haven't met a lot of salespeople who were healthy, assuming everything's in good health and we're moving forward, there's an ideal of retirement. Sell off to a Caribbean island and become a jet ski rental owner or something. 

Tonya: Spend time with my grandkids.  

Shane: I hear that a lot. Probably a little more realistic, but you're a driven person. And driven. People get bored if they don't have something [00:08:00] to spend their energy on. High achievers may be a better way to put that, and that's when they end up. Doing something different, going back to work for somebody, starting another business. 

All those things. There's a lot of that idea about what they think retirement is gonna look like. And the other thing that's probably comes in a close second is they're tired. They're exhausted, they're frustrated. Maybe they get burned out. Maybe all of that's in the same bucket. Market timing maybe comes in third. 

I'm a Warren Buffet guy. The good business, there is no perfect market timing. Valuation. Experts will say, right now, over the last couple years is the best time to sell. We consider taking chips off the table. All those little phrases that come from the m and a world. And maybe if everything's aligned and your timing is right and you really are at retirement age and one of those things are met, then yeah, the market [00:09:00] is probably a very good time to consider exiting. 

But as far as, okay, I'm 45, I'm 42, whatever. Make up an age that you've built a solid business and it's man. The market's just too good. I gotta sell small businesses. Market timing. If it's a solid, sustainable business, like an insurance agency market timing is really difficult. You've got something generating a half a million dollars a year in revenue, and you sell it for two and a half times. 

Now you've got a mil, 1.25 million, a million dollar after taxes, and you're sitting there. If you're 45 and 20 years to retirement, now what? You gotta find another career. Maybe you love that. Maybe you are eat up with the startup bug and you need to go start something. I'm gonna argue. Why don't you keep your business, set it. 

Up to be semi autopilot and then go start your other venture that you are dying to do, and then if that doesn't work out, you've [00:10:00] got your fallback. We have examples of that. We have good friends and partners that have done that in the insurance agency space where they've built their agency and they went and started a new business and it's working. 

They didn't have to exit to start something else. There's just a different path here, in my opinion, that small to mid-size agencies need to consider.  

Tonya: If we're looking at how to set up for more of the perpetual revenue model, but you don't want to be in your business full-time for the rest of your life. 

What does that look like?  

Shane: The first thing is it's gonna cost you a little bit. You gotta look at this as an investment because you've gotta make sure you have the right people. Most of you that have successful independent agencies have the right people most of the time. And I keep saying it that way 'cause I don't wanna say a hundred percent of the time 'cause some of us are running ourselves ragged out there and you know who you are, but most of the time. 

You're already there. You just either feel guilty because you have these people that [00:11:00] you're paying, that are doing all this work day in and day out, and you're afraid to step away because you have this guilt feeling like you've always been there 50 hours a week. So you have to be there 50 hours a week and baby steps here is okay. 

To go back to our favorite movie. What about Bob Baby steps? Maybe it's showing up a little later. Maybe it's leaving a little earlier. Maybe it's taking gaps in the day. You just start doing things right, and this assumes that you've got. Some people, if you're a solopreneur and you wanna look at this, maybe your agency network has some options for you. 

Maybe they have some service center options. We launch our service center January, 2026 at Integra Partner Network. You can have a VA partner take some work off of you there on the back end. If you're a solopreneur, probably gonna need to hire someone that can be your rock. And I know that's a little scary, but it's out there. 

They are [00:12:00] out there. And you might pay this person a little more than normal. So let's say you're looking in your market for a licensed account manager, CSR type person. Very operational, very service oriented. That can write some business and your personal lines focused. So many of the agents in this category, they can handle some new business. 

They can service the business that's there. You can cut yourself back to say, 30 hours a week initially with an eventual thing of getting to a target. Time period that you spend every week. Let's say this person in the marketplace is $45,000 a year. If you pay them $55,000 a year, you're going to spend an extra $10,000 and that person is locked in. 

And maybe you do some things like retention bonus and we add a few little gravy things in there, and. This person is getting something incredible. They love the opportunity you're giving them. You've [00:13:00] made an investment. Since you're generating significant six figure income, this'll work. You can release a little bit of stress, slow down a little bit and create this definition of a lifestyle business. 

This. Is something that should be considered. It's a way for a driven, high achieving person to test the waters to see can you mentally slow down? Is that even possible? I see a lot of agents exit and within six months they're looking for something to do. They can't sit around. Even those in the. 

Retirement age category, have a hard time sitting around. So it depends on where you're at. If you have the people, maybe you just start immediately cutting back how much time you're spending. If you don't have the people, that's gonna be your investment. It's gonna take you a little longer to get that person up to speed, how you want things to look, how you want things to run. 

But that type of person [00:14:00] is out there and would probably love. To find themselves in your scenario where you're saying, look, I need you to be my rock. This is what I want. These are my expectations, because. This is a return on all that sweat equity that you've spent the last 15, 20, 25 years building and guilt comes into play. 

I call it guilt. I don't know what else to call it, but it's like this habit of, I've always done this, I've always worked this much. I have to continue working this much. That's not true. That's a lie that you're telling yourself,  

Tonya: talking about people to have in place. If your people are able to handle problems at the point that. 

They don't even bring it to your attention now, then you're in a great place. So yesterday I get an email from one of our account managers that something looks weird and I reached back out to her and said, has something happened? And I said, last year we had an [00:15:00] employee that is no longer with us. That did some things incorrectly. 

It was supposed to be fixed, and she said, let me call Jamie, who is her direct supervisor and see if Jamie can help with this. She calls Jamie. Jamie called me. I told Jamie what had happened with the former employee and she said, that didn't get fixed, but let's get it fixed today. Let's get it fixed now. 

And they sent us paperwork. We filled out paperwork and it got fixed, and it was so systematic. It was perfect. Even though I work in the business and I know we have the system set up, it was impressive from a consumer standpoint, this is a problem. Let's figure out how to fix it. But it never escalated and had an owner or the head of our retail operations. 

It wasn't a, oh my gosh, this is really messed up. It was very. Let's fix it and our people did. If [00:16:00] you have people in place that can fix it, it never even comes to your attention. Then you're in a great place to move into building a perpetual revenue model. Not that we want you to retire. Shane, that wasn't what I was trying to say. 

Shane: Yeah, no, I did not know that. Good to hear. Great to hear. Actually, that's a really good example because I am at a point today where I have this unwritten rule with our office retail folks here in Huntington, Texas, very small town. If something happens to someone I. In the Huntington community, there's this thing of, Hey, don't forget to just give Shane a note because I call it the sideswiped in the grocery store effect. 

I don't like getting blindsided in the grocery store. That is a beautiful place. If we were not in the business that we were in, I could cut my hours back. I could slow down, I could do some things, but we're doing some, uh, different things with [00:17:00] the growth of the agency network, with the expansion of that across geographic. 

Areas and I am busy. I am working a lot, but I'm doing that because I enjoy it and I love what I do every day. I'm not trying to figure out how to slow down today and that. Is a great point to say when you reach that point where problems get solved, but you didn't actually know about the problem. That's huge. 

That's a huge thing, and for all of us that are sales driven high performers, we generally also have this control characteristic. That is something that you would have to work on yourself is being able to extend that trust. Trust is earned. I know it's gotta start somewhere. It's how you communicate. It's how you set expectations. 

Building an annuity, a lifestyle, a residual income type business is still possible. It may be that you're used to making [00:18:00] $200,000 a year, and now you're gonna make $150,000 a year, but you're gonna spend less time. So what's your need? Where are you? That's the question that I would ask. And if you're going to sell your business for a million dollars. 

But you can generate $150,000 into perpetuity. Do the math. Six, six and a half years. Where's the break even point? It's kinda like rental income, I guess is, maybe that's what just popped into my head. If you're generating this return and this income off of this business, I. And you're spending some period of time on it, and I don't want to paint this zero time picture. 

I don't think that actually works. You're an owner operator. You need to be looking at numbers, you need to be watching trends, you need to be engaged with your people, things like that. But what's the number? How does it calculate out? My mind goes immediately to the math. So you're telling me that in year six, year seven, I've basically made the same income that I would've if I sold, and I still have the asset. 

[00:19:00] Under my control. That's no different than having a rent house that you're generating revenue off of and you still control the asset. That's the thing that speaks to me as a finance person. You sell it for a million, you invest that money, are you gonna get the same return if you sell it for a million and you're generating 150,000? 

If that's the value of it, that's a 15% return. So. Can you get 15% on your money elsewhere and hold onto the balance of the money? That's where this becomes a finance deal. In some cases, you can take the emotion out of it. There's different pathways you can take here. It's an alternative that should be considered for certain size agencies. 

I. Got somebody at your doorstep offering you a million dollars. Don't look at that as, oh my gosh, I made it. Look at that as a financial math scenario and go, okay, but if I held onto it and I generated X, then what does that look like 5, 6, 8 [00:20:00] years from now? Hiring the person to operate your business is not a bad thing. 

We talk about that as a family owned business. Is there a day where we would hire an outside CEO? I don't know. There may be a CEO in the family, a future CEO in the family. And then again, there may not be and that's okay. I've seen a lot of family, privately owned businesses hire outside CEOs successfully. 

I've seen some hire outside CEOs unsuccessfully, just comes down to the right people in the right fit  

Tonya: the option that we haven't brought up. Is the one that I really don't like and I think that you really don't like, but it always seems like such a good idea and that is, I'm gonna sell my business. But they've offered to let me stay on for a year, two years, three years in perpetuity, whatever. 

I love to sell, so I don't have any of the problems of running the business, and all I have to do [00:21:00] is sell.  

Shane: I'm not a fan. That is part of some earnouts they would call it, might have some earnouts that include you staying on. Ironically, I have some cousins that sold their family bank. They've done this well, and it's one of the few that I have. 

Any knowledge of where this has happened. The reality is you spent a long time being your own boss. Whoever buys you is not going to operate your business the same way you would, so you're gonna get frustrated. And I just want people to admit that right up front, like that would be my statement to a buyer. 

Somebody that came in and said, Hey, we wanna offer you a gazillion dollars. This is gonna be multi-generational wealth creation and you don't have a choice. Here's this check. We're gonna dangle over your head and we want you to stay and operate it. For us, and I just, I wanna be upfront with 'em. Life. I may not have a choice, but this is just the way my unfiltered brain works these days is, Hey, great, [00:22:00] this sounds wonderful. 

You're not gonna like it and I'm not gonna like it. Are you still okay doing it this way? What's the arbitration, to use a fancy word here, who's mediating this? How are we going to move? From point A to point B, because you're gonna pay this money to me, and then you're gonna wanna return and you're gonna want me to see through your lens of financial terms and getting a return for your investors. 

But I've been operating under an infinite gain model where sometimes we make decisions that cost us money because it's the right thing to do for our client. It's the right thing to do for our agent and our agent network. And now. I don't have that full authority to do that, and we're gonna have friction because you're gonna want me to do that and I'm not gonna want to do it. 

Very simple. Example agency owners that are in that spot where you're able to generate an additional whatever percent that they promise you on an earnout, just know [00:23:00] that it's probably gonna create misery for you. There's very few times that I hear where it doesn't create misery for the founder, owner, seller. 

I'm sure it works out there 'cause people are doing it. I'm sure there's some examples that I don't know about. I don't like it. We become used to being our own boss, and now we're not our own boss anymore. We're working for somebody else. Even if they say we're investors, we're not operators, so we make investments. 

We want you to stay on and operate the business. Yeah, but understand their investors wanna return.  

Tonya: Look at Southwest Airlines right now. That is the ultimate example. Yeah.  

Shane: Southwest has become investor driven. That's larger scale than what we're talking about here, but. It is reality. They're after additional dollars. 

If you sold on a proforma with an earnout, they're gonna want you to hit that. Pro forma to get the earnout. You are shifting to a financial return [00:24:00] oriented model and you as a founder owner have to really wrestle. Going into that situation with, are you willing to make that shift? Are you willing to change yourself and how you see the world and how you conduct business. 

I am not saying do bad things. I'm saying there's a difference between the decisioning when it's a pure, call it private equity, call it whatever, roll up strategy. When you have someone that spent a bunch of money, they didn't spend a bunch of money, I. Because they like you and they think that you should be rewarded for your years of sweat equity. 

That's not why they're buying you. They're buying you 'cause they see an opportunity to generate a return off of your business if you want. Do it with eyes wide open. I'm not saying you shouldn't just do it with eyes wide open. Knowing what the potential pitfalls manage your downside risk there.  

Tonya: Looking at this from a long-term perspective, what does it take to decide? 

Do I [00:25:00] want the lump sum? Do I want to create this perpetual revenue model? There are some questions that, that you ask yourself, and one of them that is so important to me is, am I looking for freedom or am I looking for finality? And if you're looking for freedom, hire somebody. If you're looking for finality, then sell your agency. 

The other idea to me is to ask yourself, do I want out or do I want help?  

Shane: There's a book that I read years ago called Built to Sell. It's a fantastic book. I want to be clear about something. All of these options, including the find freedom, hire someone, generate a lifestyle business, generate a per a perpetual annuity type business, I still believe you should be running your business and setting your business up as if it is always for sale. 

Now, does that mean you're selling it? No. That doesn't mean you're selling it. You don't even have to have selling it in your 10 [00:26:00] year horizon. I don't care if you plan to never sell it, but think about running your business as if it is always for sell, as if you are about to hand your financials over to a potential buyer. 

It's a self-accountability thing for me. A lot of business owners run their business and live out of their business, and they can't see how their business is actually operating. When I say lifestyle business, in case any of you, m and a advisors and experts out there are listening to this and you're freaking out, hold on. 

Don't freak out on me. I 100% believe you should run your business as if it's always for sale. Which means you should have good financial picture. You should have very good awareness where your personal income starts and stops, expenses, stop, et cetera, that they're not all. Convoluted into the financials of the business [00:27:00] that you're not living out of that business that is not built to sell, and the definition of create a lifestyle business or create more time and freedom. 

That's the option. If it's freedom and not finality, I still believe you have to set things up and financially manage it as if it is always. For sale on the finality side, the business just is better. Okay? This is the thought process. Your business is stronger, better, and you understand what you can hire for and where the freedom can be developed for yourself. 

When you know the real picture, when it's convoluted and murky and all mixed with your personal stuff, you just don't know where it really is. You don't know where the healthiness of your business is at, and it's very difficult to make decisions about. Which way to go just for clarity. Lifestyle, business does not equal just holy golly, [00:28:00] type financials. 

Run your business, set things up as if it's always for sale.  

Tonya: I'm gonna leave us today with this quote from Jerry Rice Today. I will do what others won't, so tomorrow I can accomplish what others can't.  

Shane: Attitudes a choice. Make a great one.  

Tonya: Bye y'all.  

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