When you decide to pursue an external sale—now the new, unavoidable standard for agency perpetuation—the due diligence process begins. While often associated with deep financial audits, the entire process starts with a General Due Diligence Questionnaire.
This is the buyer’s foundational, non-financial review. It is designed to answer the most basic questions: Who are you, legally? How are you structured? And what is the high-level risk and stability of your operation?
Preparing this information in a standardized format is the crucial first step. It builds trust, streamlines the entire process, and is a key defense against the Brokerage Gap, where unpreparedness can cost you.
Foundational Legal & Ownership Data
This section is about verifying your agency’s legal identity. A buyer must confirm exactly who and what they are negotiating with before they can make an offer.
Basic Identification and History
Expect to provide the basic facts of your agency’s existence. This information provides context and forms the basis of all legal documents.
- Legal Name of Agency, Address, and Phone Number
- Agency Inception Date
- Fiscal Year End
- A narrative Historical Overview of the agency
Legal and Ownership Status
This is critical for establishing the legal standing of the business and who has the authority to sell it.
- Type of Entity: Are you a corporation, partnership, LLC, etc.?
- Incorporation Date: The official date your business was formed.
- Owners & Officers: A complete list of all owners, their titles, and their precise percent of ownership.
This data is essential. It provides the legal and historical context a buyer needs to draft a Letter of Intent (LOI) and, eventually, the final purchase agreement.
Meticulous Documentation and Compliance
This guide explains the essential documents you must prepare to build unshakeable buyer confidence, withstand the intense scrutiny of due diligence, and ultimately secure a premium valuation.
Operational Infrastructure
This part of the due diligence questionnaire assesses the nuts and bolts of how your agency operates. The buyer is trying to understand the complexity of your business and what it will take to integrate it into their own.
Standard Operating Procedures (SOPs)
Documented, step-by-step guides for core business tasks, serving as the blueprint for business operations. SOPs codify success, ensure consistency, and are the most powerful tool for mitigating key-person risk.
An Independent, Talented Team
A buyer is investing in your people as much as your policies. A stable, skilled team is arguably the single most important factor in securing a premium price.
Technology for Scalability
Technology forms the core infrastructure that enables your Turnkey Operation. Your Agency Management System (AMS) and Customer Relationship Management (CRM) tools function as the central nervous system of your agency.
A Turnkey Operation is an agency that is structured to run smoothly, efficiently, and scalably without the daily dependence of the current owner. It is built on documented systems (SOPs) and an empowered team. Buyers pay a premium for this.
Building a Turnkey Agency for Maximum Value
This article breaks down the strategic moves required to build this investment-grade asset and command your maximum market value.
Foundational Risk & Stability Metrics
This section bridges the gap between basic facts and the deep financial analysis to come. It is a high-level look at your agency’s risk profile and the stability of your most valuable asset: your book of business.
E&O and Claims History
Assessing your agency’s professional liability is mandatory. A buyer needs to know what potential risks they are inheriting. Be prepared to provide:
- E&O Coverage: Your current E&O Carrier, Limit, and Deductible.
- Claims History: A detailed explanation of any E&O claims your agency has had in the past five years.
Retention Ratios
While benchmarking analyzes retention deeply, the general due diligence questionnaire requires this metric upfront. It is the single best indicator of client loyalty and the stability of your recurring revenue. You will need to provide:
- Commercial Lines Retention (commission basis %)
- Personal Lines Retention (commission basis %)
- Life & Health Retention (commission basis %)
This data provides the buyer with their first objective look at your agency’s quality. A clean E&O history and high, stable Retention Ratios build immediate confidence and set a positive tone for the rest of the due diligence process.
Fortifying Your Financials
This article provides a detailed guide to the metrics and disciplines required to prove your agency is not only profitable but also professionally managed and built on a foundation of unimpeachable integrity.
Setting the Stage for a Successful Sale: Preparation is Your Best Defense
General due diligence covers the foundational data that every serious buyer will require. Fumbling these easy questions—by not knowing your percent of ownership, your E&O history, or your retention rates—signals disorganization and can start the negotiation on the wrong foot.
By gathering this information before you go to market, you demonstrate transparency, professionalism, and preparedness. This builds trust and sets the stage for the deeper financial and carrier-specific analyses to come.
This preparation is your first and best defense against the risks of the Brokerage Gap, ensuring you are negotiating from a position of strength, not surprise.
At Milly Books, we guide agency owners through every stage of the M&A process, starting with data preparation. We help you organize your information so you can enter a negotiation with the confidence that comes from being fully prepared.
Frequently Asked Questions (FAQ)
General due diligence (this article) is the who, what, and where. It verifies your legal structure, operational setup, and foundational risk (E&O, retention). Financial due diligence is the how much. It is the deep dive into your P&Ls, balance sheets, and pro forma analysis.
Your filing system is a proxy for your technological adoption and administrative efficiency. An agency that relies on paper files (Alpha) represents a significant, costly, and time-consuming data migration project for the buyer. An agency that already scans all documents is far easier and cheaper to integrate.
Yes, absolutely. You must disclose it. The buyer will find it during their diligence. Hiding it will instantly destroy all trust and kill the deal. The best approach is to be transparent: provide the details, explain what happened, and—most importantly—document the new processes you implemented to prevent it from happening again.
This is the percentage of commission revenue you retained from the prior year’s book of business. It is a more accurate measure of stability than policy count retention, as it reflects the value of the clients you keep, not just the number of them.
Glossary of Key Terms
- Due Diligence: The rigorous process in which a potential buyer reviews comprehensive financial, operational, legal, and client data to assess the agency’s true value and viability before an acquisition.
- Benchmarking: The comparison of an agency’s key operational and financial metrics (such as retention ratios or commission per person) against industry standards or peer averages to identify deficiencies.
- Type of Entity: The legal structure of the agency (e.g., corporation, sole proprietorship) required to be disclosed during general due diligence.
- Filing System: Information requested during due diligence regarding the agency’s document management process, categorized as Alpha, Transactional, or Documents Scanned.
- E&O Coverage: Errors & Omissions coverage details (Carrier, Limit, Deductible) required in the due diligence questionnaire to assess the agency’s risk management.
- Retention Ratio: A key operational metric required in due diligence, indicating the percentage of business retained (on a commission basis) for Commercial Lines, Personal Lines, and Life & Health.
- Incorporation Date: The legal date the agency was incorporated, required as part of the general information section of due diligence.
- Historical Overview: A narrative of the agency’s history required in the due diligence questionnaire to provide context to the buyer.
- Owners & Officers: Required disclosure in due diligence detailing the name, title/position, and percent ownership for each owner.