Valuation Multiples for an Insurance Brokerage
An insurance brokerage can be a profitable business opportunity for entrepreneurs looking to capitalize on the growing need for financial protection. If you want to buy, grow, or sell an insurance brokerage, consider obtaining a business valuation. When valuing a brokerage, an expert calculates its fair market value using valuation multiples for an insurance brokerage. In addition, you will gain insight into your insurance brokerage’s market position, strengths, weaknesses, risks, and growth potential. This information is critical if you want to maximize the value of an insurance brokerage.
In this article, we explore valuation multiples for an insurance brokerage. The multiples and values we discuss are industry averages and may not apply to your specific brokerage. To receive personalized guidance, it is best to connect with a professional business appraiser.
Peak Business Valuation is a reputable business appraiser that helps insurance brokerages across the country. We are here to provide a reliable insurance brokerage valuation! We can also answer any questions you have on valuation multiples for an insurance brokerage. Schedule your consultation with Peak Business Valuation to get started!
Valuing an Insurance Brokerage
When valuing an insurance brokerage, valuation experts may use a variety of valuation methods. One of the most common methods is the market approach, which relies on valuation multiples to compare similar brokerages in the industry. Below, we highlight the most frequently used valuation multiples for insurance brokerages. For additional details, see How to Value an Insurance Brokerage.
Valuation Multiples for an Insurance Brokerage
The following table presents typical valuation multiples for an insurance brokerage. While these offer useful insights, they may not accurately reflect the value of your brokerage. To determine the most accurate valuation multiples for an insurance brokerage, it is best to work with a professional business appraiser. Peak Business Valuation is here to help! Schedule your free consultation to get started.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are financial ratios that provide an accurate estimate of an insurance brokerage’s market value. These multiples are derived from key financial performance metrics such as cash flow, earnings, or revenue. For example, business appraisers frequently use valuation multiples based on Seller’s Discretionary Earnings (SDE).
For example, suppose an insurance brokerage generates $200,000 in SDE and receives an SDE multiple of 3.70x. In this case, its estimated value would be $740,000 ($200,000 x 3.70x). If the brokerage is valued at a 3.95x multiple, the estimated value increases to $790,000 ($200,000 x 3.95x).
Peak Business Valuation regularly works with valuation multiples for an insurance brokerage. Below, we provide additional insights into SDE, EBITDA, and revenue multiples. For more information, see What is a Valuation Multiple?
SDE Multiples for an Insurance Brokerage
Average SDE Multiple Range: 3.18x – 4.33x
On average, insurance brokerages transact within an SDE multiple range of 3.18x – 4.33x. To estimate the brokerage’s fair market value, valuation experts multiply SDE by the appropriate multiple. The formula is as follows:
SDE x Multiple = Business Value
For example, if an insurance brokerage generates $320,000 in SDE and sells at a 3.80x multiple, the estimated value would be $1,216,000.
$320,000 x 3.80x = $1,216,000
When determining SDE, business appraisers adjust the brokerage’s operating profit to reflect its actual cash flow potential. This may include adjusting owner compensation, discretionary expenses, and one-time expenses. These financial adjustments ensure an accurate understanding of the insurance brokerage’s profitability. For further details, see Understanding Seller’s Discretionary Earnings.
Peak Business Valuation works with insurance brokerages across the country. We are here to provide an insurance brokerage valuation and answer any questions you have! Schedule a free consultation to get started today!
EBITDA Multiples for an Insurance Brokerage
Average EBITDA Multiple Range: 4.28x – 5.24x
Insurance brokerages transact within an average EBITDA multiple range of 4.28x to 5.24x. Business appraisers calculate the brokerage’s value by multiplying its EBITDA by the multiple:
EBITDA x Multiple = Business Value
For instance, if an insurance brokerage generates $265,000 in EBITDA and is valued at a 4.80x multiple, it would be worth about $1,272,000.
$265,000 x 4.80x = $1,272,000
EBITDA multiples are widely used when valuing an insurance brokerage as they provide a clear measurement of profitability. During a valuation, a business appraiser can use this multiple to compare the brokerage’s performance to similar companies.
Revenue Multiples for an Insurance Brokerage
Average Revenue Multiple Range: 1.57x – 2.41x
Finally, revenue multiples for insurance brokerages generally range between 1.57x and 2.41x. The calculation is as follows:
Revenue x Multiple = Business Value
For instance, if an insurance brokerage generates $600,000 in revenue and is valued at a 1.90x multiple, its estimated value would be $1,140,000.
$600,000 x 1.90x = $1,140,000
While revenue multiples can be helpful, business appraisers at Peak often prioritize cash flow multiples such as SDE or EBITDA when valuing an insurance brokerage. For more details, see The Valuation Process.
Summary
If you are buying, growing, or selling an insurance brokerage, obtaining a business valuation is vital. As part of an insurance brokerage valuation, an expert uses valuation multiples to estimate an accurate fair market value. In addition, the valuation process identifies the brokerage’s strengths, weaknesses, risks, and opportunities. This information can help you take the next steps in maximizing the brokerage’s value.
Peak Business Valuation is a professional business appraiser with extensive experience in valuing insurance brokerages. We are here to provide you with an accurate insurance brokerage valuation! In addition, we can discuss any questions you may have on how to value an insurance brokerage. Schedule a free consultation with Peak Business Valuation today!
