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Here is a simple and effective strategy to sell more insurance to business owners: before talking insurance, sell the owner a business valuation first.

Why? An owner with an appraisal showing his company is worth (say) $3 million is more apt to buy a $3 million key person life insurance policy than an owner without an appraisal.

Agents are discovering business valuations are a powerful tool with which to sell more insurance, financial planning, and investments.

Why target business owners? If you are not targeting business owners, you are missing a huge and highly profitable market. According to the IRS, over 6.6 million “small businesses” (defined as having up to 500 employees) filed tax returns in 1999, and a significant percentage have made their owners rich.

The best-selling book “The Millionaire Next Door” noted that 2 out of 3 millionaires got wealthy by owning a dry cleaner, a car dealership, or some other successful small business. Do not look for these companies on Wall Street; look for them on Main Street instead.

What is the successful business owners most valuable asset? His or her company, of course. And why is it so important to know what the business is worth? The following instances make clear what can happen when owners do not know:

?–One business owner was ecstatic to sell her business for $3 million–until the new owner resold it four weeks later for $6 million.

–When one business owner died, he willed his business to his son, but the IRS said it was worth twice what his father had estimated. The son had to sell the business at a fire-sale price to pay the tax due on his father’s estate.

–Two partners never funded their buy-sell agreement with life insurance pegged to the companys value. When one partner died, the surviving partner had to borrow money to buy back the decedent’s stock. The decedent’s value was so high, the loan bankrupted the company!

These are just some of the reasons why owners should know what their companies are worth, and according to recent studies, most owners want to know. A 1999 study conducted for Inc. magazine found that 57% of small business owners either had or planned to have their businesses valued.

Why does selling business valuations first lead to higher insurance sales? There are three reasons why selling valuations to business owners increases the likelihood they will buy insurance from you.

First, the more you know about your clients, the easier it is to sell to them; through the appraisal process you will learn more about your clients than you ever thought possible. In many cases you will know more than their spouses know about the owners financial condition!

Second, focusing on a business valuation first (rather than insurance) alters how the client perceives you. In the clients eyes you become more than a salesperson, you become a trusted advisor akin to the owners CPA or attorney. As a result the owner is much more open and receptive to any insurance recommendations you might make later on.

Third, when an expert appraiser says a company is worth, for example, $2 million, owners find it more credible than a value based on a “rule of thumb” or do-it-yourself software (especially if the insurance agent determined the value, which strikes the owner as self-serving).

Getting started with business valuations. So you want to sell business appraisals to your clients and prospects. How do you start?

First, choose your valuation partner and sign up to become an authorized distributor. Your partner might be a local accounting firm or a national appraisal specialist.

Choose wisely because youll enjoy more success if your partner is experienced (ask how many companies it has valued), credible (ask to see the firms client list. Do major firms use it? Does the IRS? If not, stay away), and if it sells attractively priced products (the $2,500-$5,000 range is the “sweet spot.” Most owners are unwilling to spend $10,000 or more for an appraisal).

Be sure to ask prospective partners how much you get paid for selling their products–20% commissions are typical. “Fee-only” distributors such as CPAs should be able to sell valuations to clients net of sales commissions.

Make sure your partner provides attractive marketing materials to give clients. It should offer other value-added sales support, too. For example, does the partner provide an 800 number with a recorded message explaining why owners should know what a company is worth? When making a client presentation, agents who would rather not memorize a sales pitch can dial the number, put it on the speaker phone and let the recording do the talking.

Because you are not an expert appraiser (and probably have no desire to become one), make sure your appraisal partner is willing and able to get on the phone to answer whatever questions your client might have about the report.

How To Identify Prospects. Once you choose your valuation partner, you are ready to start selling valuations.

Begin with your current clients. Make a list of those who own a business, in particular those with 10 or more employees. These kinds of businesses are often worth $1 million or more. Call them up and let them know you are now an authorized distributor of business appraisals, and explain why they need one.

Next, focus on business owners in your area. The Chamber of Commerce is a good place to start; it should be able to provide a free directory of its members including the owners name, address, phone number, Web site, and a company description. There are many ways to reach these clients: direct mail, cold calling, newspaper ads, even via e-mail. Your appraisal partner should have plenty of ideas (and sample materials) you can use to reach these prospects.

Get more referrals from CPAs. Not only can valuations get you in the door of business owners, they can help you get referrals from CPAs.

It is commonly believed that most CPAs work for Big 5 firms, but the fact is over 60% work in small firms with five partners or less. The smaller the shop, the greater likelihood that nobody is an expert in business valuations, or even likes doing them (mostly because of the liability issue). Most CPAs would rather stay away from appraisals and focus on their areas of expertise.

On the other hand, most CPAs feel uncomfortable telling a good client to go elsewhere (i.e. to a competitor) for a business appraisal because they risk losing the customer if they do. Contact all the small CPA firms in your area and suggest a solution to this dilemma: the next time someone asks them to value a business, suggest they refer the client to you instead. Since you do not provide accounting services, the CPA can refer clients to you with complete confidence.

Conclusion. Because small business owners buy key person, buy-sell, and other lucrative types of life insurance, make sure you build relationships with them. Join hundreds of insurance agents who have discovered a simple, highly effective strategy: before talking insurance, sell the owner a business valuation first.

is president of SPARDATA, Annapolis, Md., a business valuation firm. He can be reached via e-mail at davidson@

spardata.com. Or visit his website at www.spardata.net.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 15, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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