A new study has revealed the staggering amount of money business owners spend during a transition period, specifically on insurance vendors and suppliers.
Research shows that businesses spend more than $3.9 billion annually on insurance suppliers and vendors during business-for-sale transitions. In addition, nearly all buyers — and 30 percent of sellers — of small businesses indicated that they either increased spending, added products or services or switched vendors within the insurance industry as part of the ownership transition process.
These numbers show that the substantial investments business owners make during an ownership transition are critical for the economy. Prior to selling, owners usually invest in their business to support a higher asking price. Post-sale, the new owners spend to drive business performance and get the business running the way they want. (Total expenditure numbers in the study are based off BizBuySell.com and U.S. governmental data, which indicate that roughly 500,000 businesses change hands each year.)
The spending that takes place during a business transition presents a unique opportunity for insurance vendors and suppliers to add new business. According to survey respondents, 69 percent of new business owners added an insurance provider or switched to a new provider entirely, and an additional 16 percent added or switched to new insurance products after buying a business. Finally, nearly 15 percent of business buyers extended the coverage provided by their existing policies.
In addition, 21 percent of respondents who sold their businesses said they added or switched to a new supplier in the 12 months prior to selling, while an additional nine percent of seller respondents indicated that they moved to a different product, tacked on additional products or extended coverage as part of their existing vendor relationship.
The study estimates that business buyers in aggregate spend more than $3.4 billion on insurance products during the first year of business ownership. Additionally, business sellers spend about $460 million more each year in total on these products to help prepare their businesses for sale.
These insurance adjustments create substantial new account selling opportunities for agents, as well as an opportunity to expand share-of-wallet with existing customers.
Another interesting fact: Business buyers actually spend more than start-up business owners over their first year of ownership. According to the survey results, the average business buyer spends $95,878 across all supplier categories during the first year of business ownership. That’s 25 percent more than the $76,704 spent by owners in the first year after launching a business from scratch. So while newly launched businesses continue to provide an excellent sales opportunity, this new market of small business sellers and buyers is even bigger — and has largely flown under the radar.
It’s a bit counterintuitive, but it makes sense. In most cases, someone who has recently purchased a business has more capital available, more concrete needs and is managing a much larger business than his counterpart starting a business from scratch. That’s definitely something all insurance providers should keep in mind when pursuing new sales.
For more sales tips, see: