Selling or Buying an Agency? Your Commission Statements Are the Diligence
Your carrier statements are the record a buyer can test. A management report typed in week one is not a substitute for the carrier page.
A buyer needs carrier statements to verify the commission revenue you report.
Prepare monthly records before diligence starts
DealFlow OS publishes a buyer checklist. For most independent agency acquisitions in the $1 million to $5 million revenue range, it says thorough diligence takes 45 to 75 days from execution of a letter of intent. Carrier consent-to-transfer confirmations can take 30 to 60 days on their own, according to the same checklist. Start those requests early.
The same checklist flags management-system data that does not agree with carrier commission statements. Keep the carrier statements as evidence for the revenue in your reports.
If you might sell in the next two years, the monthly close is the diligence file. The four checks, the expected-policy list and the chargeback log are records a buyer will ask for. Keep them with each monthly close.
What the checklists actually request
Milly Books tells buyers to request 24 months of commission statements, along with carrier contracts and contingency schedules. Separately, it calls missing reconciliations a data-quality red flag, because those reconciliations are ordinary hygiene for an agency on a management system. Keep both the statements and the reconciliations.
"Reconciled" here means you can show, for a month, that the statement lines, the deposit and the revenue in the books describe the same dollars, with the differences listed. Keep a reconciliation that explains how the PDFs agree with the profit-and-loss statement.
Use policy-level records to explain retention
The buyer is not required to accept the retention percentage on your slide. Policy-level lines show which policies paid, which stopped and when.
Keep the missing-policy lists from each close. Investigate policies that stop appearing before classifying them as lapses. A rewrite with a new number can look like both a lapse and a new sale. Link the old and new policy numbers.
Keep the statements and their policy identifiers in one place. Direct sync remains custom work, which is the limit in the AMS article. Prepare the history before the buyer requests it.
Review contingent income before including it in the price
Separate policy commissions from contingent income. For each contingent, record the carrier's formula, the period it covers and the conditions the buyer would have to meet.
PolicyBalanceHub says some carriers can claw contingencies back if the agency changes ownership. The carrier contract says whether a change of control forfeits the bonus or demands it back. Read that clause for each carrier that pays a contingent.
Put the contingents on their own schedule. The rows below are a template, not a result.
| Carrier | Last payment | What it was tied to | Change-of-control clause read | Included in the asking price |
|---|---|---|---|---|
| Example carrier A | March, prior year | Growth target, per their plan | Not yet | No, until the clause is read |
| Example carrier B | March, prior year | Loss ratio | Forfeited on change of control | No |
Leave a contingent out of the price until the clause is read. Unverified contingent income can lead to price retrades during diligence.
The trust account has to agree with the carrier
PolicyBalanceHub also asks for 12 months of trust-account statements, reconciled against the carrier statements for the same period. Premium that belongs to the carrier, or to the insured, is not commission. A statement can show commission inside a sweep that also moved premium. If the trust account and the statements disagree, the buyer cannot tell operating cash from money that was never yours.
This is the same bank check as the monthly close, applied to the balance sheet a buyer will read. The deposit for commission should be traceable to statement lines. The trust balance should be traceable to premium you have not remitted.
What to have in the room
- Carrier commission statements a buyer can compare with the management system, which is the check DealFlow describes.
- At least 24 months of commission statements, per the Milly Books checklist, and a reconciliation for the months you claim are closed.
- A list of open items, with age, rather than a stack of untouched differences.
- Policy-level lines a buyer can use to see which policies paid and which stopped.
- A contingent schedule, with the change-of-control clause marked for each carrier.
- Twelve months of trust statements reconciled to carrier statements, per PolicyBalanceHub. Trace commission deposits to statement lines and the trust balance to premium not yet remitted. List any differences.
- No reliance on a management-system sync to produce the history during the review.
If you are a year out from a sale, or you are buying a book and the statements are the only clean record, a guided pilot on a recent month shows what a reconciled package looks like. You bring approved statements. You see matches, exceptions and the payout evidence. It does not value the agency, and it does not sync the management system.
Questions agencies ask
How many months of carrier statements should you have ready?
Milly Books tells buyers to request 24 months of commission statements, and it treats missing reconciliations as a data-quality red flag. DealFlow OS says diligence for many deals in the $1 million to $5 million revenue range runs 45 to 75 days, and it tells buyers to compare management-system data with carrier commission statements. Keep the statements month by month so you are not reconstructing them in week two.
Why do contingent commissions move the price?
Review each contingent under its carrier formula and payment terms. PolicyBalanceHub notes that some carriers can claw contingencies back if ownership changes. Read that clause before the amount is treated as part of the price.
What to read next
Operations8 min read
The Monthly Commission Close: Four Checks Every Carrier Statement Needs
A carrier statement is closed only when the book, the rate, the producer and the bank deposit agree. Leave one of those open and the month is still open.
Finance8 min read
The Commission You Never See: Finding Expected Policies Missing From Carrier Statements
The expensive miss is often a policy that never appears on the statement. Compare the book you expected to get paid on, not only the lines the carrier printed.
Technology8 min read
Your AMS Says One Thing, the Carrier Paid Another: Working the Gap
An agency management report and a carrier statement are different pictures taken at different times. Reconcile them beside each other. Do not wait for a sync to make them identical.
See what a reconciled month looks like before diligence
Bring one approved carrier statement. A guided pilot shows the match, the open items and the payout evidence a buyer would ask to see. It does not value the agency, and it does not sync your management system.