valuation
Future profitability is the primary determinant of current value. Pricing should reflect the expected future earnings of a buyer rather than the historical performance of the business. While past revenue can indicate business momentum, emphasis should be placed on the net income remaining after all operational expenses have been accounted for.
In the insurance and financial service sectors, tangible assets are often minimal. Therefore, the true value lies in the cash flow generated from clients, particularly the amount exceeding the costs necessary to operate the business.
In valuation, lower risk corresponds to a higher price. Buyers are likely to pay less when they assume greater risk. The assurance that a portion of cash flow is recurrent—and the sustainability of that cash flow—reduces perceived risk and enhances the valuation.
Valuing a book of business entails both objective and subjective analyses. Objective assessments focus on quantifiable metrics such as revenue and expenses, while subjective evaluations consider factors that may influence the perceived value of one book over another, despite similar revenue levels. Subjective elements may encompass deal specifics like payment terms, guarantees, claw-back clauses, and the seller's role during the transition.
Ultimately, the valuation's accuracy or realism is secondary to the willingness of both parties to finalize a deal. The agreed-upon price will largely depend on the motivation and determination of the buyer and seller to reach a mutually acceptable agreement. The ideal scenario occurs when both parties believe they have achieved a fair price.