Independence never comes easy. Ask our forefathers who fought the Revolutionary War more than 200 years ago. If you expect to survive as an independent insurance agency amid fierce competition in the coming years, you’ll need to grow, either organically or by acquisition.

To grow organically, first assess your agency’s assets and available cash, which may be in short supply, especially in today’s credit crunch. Then determine the capital needed to achieve your goals, which could range from $25,000 for new furniture or technology to $10 million for a major acquisition. To grow through acquisition, be sure to do the right kind of due diligence:

Buyer’s due diligence

1. Determine why agency is selling

Few agencies will volunteer everything about their business, especially the negative aspects. If the acquisition is a stock transition, which carries more risk than an asset transaction, you need to investigate more. Contact carriers that have been used in the past, read local insurance publications and the state insurance department website, contact the local Better Business Bureau, and conduct Internet searches-all of which could reveal evidence of illegal activity.

2. Analyze seller’s book

Look beyond total commissions to see what percentage of the accounts have been on the books for two years, for five years, and even for 10 years. If the acquisition has an earn-out provision, ensure that what the seller is representing on the commission book is truly in force. Review the agency’s loss ratios, carrier persistency, carrier contracts, and types of accounts and anticipate their likelihood of continuing.

3. Try to spot trends in commissions.

For example, if total commissions have doubled in the past three months, or if the agency just landed a huge new commercial contract that now represents a disproportionate share of commissions, something might be up-and you need to investigate. Review average commission per account and determine the mean, the median and other pertinent statistics. Ensure that an ironclad non-compete contract is in place and will be followed by the seller and the producers.

4. Identify trends in carrier activity

Determine which carriers the agency is placing most of its business with and if they plan to lower commission rates, give less favorable terms with contingent contracts, change product offerings-or are considering moving out of your state. Find out if the carriers’ direct writers are encroaching on the agency’s business.

Raise capital

Unfortunately, the vast majority of banks don’t typically lend enough money for insurance agencies to achieve their goals. As a result, many agency principals are often forced to tap personal assets and extend credit limits to finance growth, which can be way too risky. Banks don’t understand your most valuable and hidden asset-renewal commissions. But today, new lending sources are now available that recognize the value of anticipated revenue through future commissions.

To grow is to thrive, and these approaches can help you succeed as an independent agency for years to come.

Rick Dennen has 20 years’ experience in accounting, finance, business development, business evaluation and deal structuring.  He is founder, president and CEO of Indianapolis-based Oak Street Funding, a commercial finance company that offers commission-based capital through lending or purchasing commissions to insurance agents. He can be reached at 866-625-3863 or by email.