“I have four children. Two of them are adopted, but I forget which two.”

That’s a quote by an adoptive parent named Bob, but it speaks to some of the main points in a theory I have posited over the years to many of my small business clients, friends who own small businesses and colleagues of ours. The theory goes something like this: We bond with our business, much like a member of the family, much like an additional child in our family. And it’s helped me understand why succession is more of an adoption than an acquisition.

Since 2007, I have entertained seven practice acquisitions. I’ve acted on five of them.

All of the practices that I have adopted were similar to mine, not exact, but similar. And that is a very important point. You shouldn’t go out buying a book of business just to buy one, just to add revenue to the bottom line.

Let’s talk about the five deals that were successful.

The first deal was an older gentleman. He had heard about me with my experiences with NAIFA and MDRT and some of the local speaking engagements that I had. He approached me, and he took charge. I was probably in my mid 30s at that point in time. The phone call was, “Adam, I’m looking to retire and slow down. I was wondering if you might be interested in talking to me about buying my practice.”

Back then, you didn’t say no to anything, so I was like, “OK, let’s sit down and talk.” The initial offer was to buy his individual health and group health practice. That wasn’t the direction I was going, so I declined. Things were changing in 2007 and 2008 in the health care business, and I had planned to exit that industry, and so was he. After he found a suitable buyer, he approached me again and said, “I still have this life insurance and investment practice. Do you want to talk to me about that?” It wasn’t as sizable to his group health and health practice.

So, we sat down, and he mentored me through that process. He’d had lots of experience; I’d had none. To his credit, when we came to an agreement on certain things, he outlined stuff, and it sounded fair to me. I was just dealing out of goodwill, and so was he. We hired an attorney and drafted an agreement. It outlined how we get into the relationship and how we exit the relationship. It also outlined the terms of the buyout and how we would transfer things specifically from him to me.

We did a six-year deal. The first three years were set up where it was 50-50 on the revenue. My office handled all the service work. We did everything, and we kept 50 percent of the commission. I was at the higher end of the gross dealer concession payout grid. I was close to the 85 percent level, and, because he had been slowing down, he was down at the 40 percent level. So, that created an opportunity where I felt sufficiently compensated to do the service work.

The second three years was 80-20 — 80 percent to me, 20 percent to him. And then at the end of the six years, it was all mine. It didn’t require any money upfront, it compensated him out of the revenue from the business, and then anything new that we did was split 50-50.

The second deal was his associate. I sat down with Jerry, and we quickly saved a ton of time, using a very similar kind of framework to the first deal, except it was a shorter period of time. Jerry had been ill and was not active really at all, so we just did a two-year agreement. It was very simple. It was going to be the same 50-50, 80-20, and then after two years, it was all mine. Jerry passed away 12 months into the agreement. So, that ended our agreement, and I was thankful to have things in writing and finish the buyout based on the terms of the agreement.

Don’t do this on a handshake. You must have it in writing, even if you know and trust the person.

The third deal was another classmate of theirs, but he wanted to stay active in the business. He never wanted an end date to our agreement. I was a little reluctant to do it. I eventually gave into some of the terms that we were passively negotiating. So, we made a 60-40 split. And, again, because I’m at the higher end of the grid than him, it makes it very fair to my office and my staff. He is still active in the business.

The fourth deal was Mickey. Mickey used to be my compliance officer. I would call him maybe once a year. Early on, it was twice a year because he was talking about retiring. Then I got a little tired of calling him all the time. I did not want to feel like I was chasing him down to buy his book of business. The general agent suggested to Mickey that he come talk to me, but nothing happened for many years, until he was sick. Then, as the story goes, he was a deathbed transition. There were no terms other than he really was just looking for somebody to continue his legacy and take care of his clients.

The fifth deal was an associate of mine who had been in the industry for six or seven years. He moved on, and we just made a one-year deal. Where the agreement came in handy was in the last month when I transitioned to buying him out from his book of business. Again, I can’t emphasize enough that the grid leverage in our system really helped out. I was able to take more table and use the additional percentage payout to create revenue for me to make it worthwhile: to service the book of business while meeting the obligations of the payout.

Here are some things I know now that I wish I’d known then.

• How well do you know your predecessor? If you don’t know him or her well, can you find out?
• Licensing becomes an issue as well. People are a lot more mobile. They are moving to different states that they may not have licenses in, so you have got to have a conversation about that upfront.
• What is the average age of the client base? Because it wasn’t in a system, I didn’t know. But generally speaking, I would say it is 10 years minus their age to 10 years plus their age.
• If the predecessor is going to be involved, ask them about technology, such as “Do you know how to log in? Do you know how to look up your commission statement? Do you know what Outlook is?” — basic stuff they need to know. If they don't, it makes it difficult for your staff, and it requires more work on your end. Have the agreement in writing, even if it is one page, even if it is just a bunch of bullet points.

I’ll end with the quote I started with. If you were to look at my system, my database, there are almost 4,000 clients. I would say easily half of them, not all of them, are clients. They are accounts. You have people who just do business with you. You wouldn’t really call them clients. So, there are 4,000 contacts and accounts and clients in my system. I would say at least half of those came from these practice adoptions. “I have four children. Two of them are adopted, but I forget which two.”

Adam A. Solano Jr., CRPC, is a 23-year MDRT member with 11 Court of the Table and two Top of the Table qualifications. An active member of MDRT and NAIFA since 1997, Solano has run for public office, spoken on Main Platform, been a 4 Under 40 recipient, defended the industry on live television and recently wrote a book. He lives in a suburb of Chicago, Illinois.